Blogs & Comment

Americans are working harder—for the same pay: Erica Alini

Here's why.

The Federal Reserve is optimistic: It now predicts that the U.S. jobless rate will fall to 7%, and possibly even 6.5%, next year. The share of Americans bringing home a paycheque will soon get considerably larger, if all goes according to plan.

But what about wages?

How much those paycheques amount to matters a great deal to the Canadian economy too. Exports to the U.S. were the main engine of growth during the first quarter. Demand for our stuff generally comes from the private sector, which, in turn, depends heavily on U.S. consumers. So how much money do average Americans have to buy from us?

The answer is dispiriting: U.S. wages have remained virtually flat throughout the recovery and there are no signs of pickup. The latest numbers from the Bureau of Labor Statistics show that inflation-adjusted hourly wages dipped slightly in May.

Earlier this month Fed Governor Sarah Bloom Raskin lamented that the jobs the recovery has produced are worse than the ones the recession wiped out. Research at the bank, she said, found that while two-thirds of the jobs lost during the downturn were middle-income jobs, like those held by factory and construction workers, half of the post-recession hires were low-income gigs, such as retail sales assistants and fast-food restaurant employees. Raskin also discovered that those filling the new, poorly paid jobs are often overqualified: “I didn’t think life guard was a job that required an advanced degree,” she remarked.

Average wages in the U.S.—and in many other advanced economies—have been growing at a very slow clip for decades, something which economists have variously attributed to the effects of globalization, technological progress and the decline of unions.

What’s perplexing, though, is that productivity, or output per hour, which usually drives real wage gains, kept growing at a healthy pace. The recession, then seemed to exacerbate the trend, with productivity shooting upward during the recovery and wages flat-lining even as the labour market started showing signs of healing.

Screen shot 2013-06-20 at 10.17.05 AM

Now, Raskin’s findings would suggest a slower growth in productivity too, since low-skilled jobs are generally associated with lower levels of output per hour. But what if it’s college grads who are flipping burgers and wiping tables? Is a high-skilled worker in a low-skill gig likely to be more productive than someone who has the regular resume for the job?

The answer is yes, according to Gary Burtless, a senior fellow at the Brookings Institution and a former economist at the U.S. Department of Labor. People with a bachelor’s degree, he told Canadian Business, tend to be more productive than less qualified workers even in jobs that don’t require a college education.

Another factor contributing to slow wage growth and skyrocketing productivity, Burtless said, is American workers’ weaker bargaining position. During the crisis, he recalled, businesses engaged in massive layoffs amidst fears that the collapse of financial institutions would leave them without access to credit. That threat, at least for big business, was over by the spring of 2009, but many employers found they could keep meeting demand with smaller payrolls. Indeed, data from the BLS shows that hires are still hovering around 4.3 million a month. Before the recession new job openings topped five million. And churning out the same levels of output with fewer workers drives up productivity.

“I suspect there are a lot of overworked people out there,” said Burtless. But it’s likely that those pulling all-nighters and skipping weekends and vacations to cover for laid off colleagues aren’t asking for a raise for fear of becoming the next guy (or girl) to walk through the exit door with a cardboard box full of family pictures, office desk paraphernalia and coffee mugs.

That might be an irrational fear since layoffs stabilized to pre-recession levels around 2011. It’s still a very tough job market out there, and people might also worry that if they leave the job they have—however unhappy they are with it—they might not find another, says Burtless. Either way, the end result is that the number of “quits”, i.e. people who leave their job voluntarily for reasons other than retirement or inability to work, is still extremely low after plunging during the recession.

America, in short, needs both better jobs and more quitters. But I suspect the latter are a smaller issue. As the labour market keeps improving, fears of leaving unwanted jobs will likely fade. Quits still seem a problem related to the business cycle. The middle-wage for low-wage job tradeoff, on the other hand, could well be a structural problem that won’t go away even as economic growth approaches full potential.

Erica Alini is a California-based reporter and a regular contributor to CanadianBusiness.com, where she covers the U.S. economy. Follow her on Twitter: @ealini.