The Building Tradesman Newspaper

Friday, March 06, 2020

Minimum wage laws, at least, are pushing pay higher

By The Building Tradesman

Median hourly wage growth for the American worker grew a paltry 1.0 percent in 2019, adjusted for inflation, although the highest (top 5 percentile) of wage earners continue to pull away from middle- and low-wage workers.

And even with the modest wage growth over the past few years, the median U.S. wage is only $19.33 an hour, which translates into about $40,000 for a full-time, full-year worker.

That's the word from the labor-backed Economic Policy Institute, which issued a report on Feb. 20 that found most workers experienced consistent positive wage growth in only 10 of the past 40 years. That is, during the tight labor market of the late 1990s; and in the last five years, when the unemployment rate hit its lowest points in 50 years.

“Rising wage inequality and slow and uneven hourly wage growth for the vast majority of workers have been defining features of the U.S. labor market for the last four decades, despite steady productivity growth,” said EPI Senior Economist Elise Gould, who authored the report. “But these alarming trends are not inevitable—they are a direct result of a series of policy decisions that have reduced the economic power of most workers to achieve faster wage growth.”

States which have imposed minimum wage increases, not surprisingly, are providing the ticket to higher wage increases on the lower end of the wage spectrum. Wage growth for low-wage workers in states that saw minimum wage increases in 2019, like Michigan, was faster than in states without minimum wage increases between 2018 and 2019. Wages for workers in the bottom 10th-percentile wage rose by 4.1 percent in states with minimum wage increases, compared to just 0.9 percent growth in states without minimum wage increases. But there's plenty of room for improvement.

“Wage growth for low- and middle-wage workers continues to be slower than would be expected in an economy with relatively low unemployment,” said the EPI's Gould. “Given this sluggish wage growth, policymakers should not presume that the economy has already achieved full employment. Instead, policymakers should take steps to foster strong wage growth, such as raising the federal minimum wage, addressing pay disparities, and protecting and strengthening workers’ rights to bargain collectively for higher wages and benefits.”

The U.S. Bureau of Labor Statistics reported in January 2020 that compensation costs for private industry workers increased 2.7 percent over the year. But the inflation rate for 2019 was 1.76 percent, significantly eating into the earning power of those raises. 

With the unemployment rate at historically low 3.5 percent, economists have been tripping over themselves in recent years, attempting to explain why a tightening labor market in the decade after the Great Recession has not resulted in significantly higher wages, like most economic models would indicate. Weaker unions, slow (not sudden) growth, more consolidation among businesses and fewer actual employers competing for workers have been pointed at as among the culprits.

Although the median U.S. wage is $19.33 per hour, the Brookings Institute reports that there are plenty of workers who comprise the low end of the "median." For 53 million Americans between the ages of 18 to 64 - accounting for 44 percent of all U.S. workers - their median hourly wages are $10.22, and median annual earnings are about $18,000. 

"It would be a mistake to assume that most low-wage workers are young people just getting started, or students, or secondary earners, or otherwise financially secure," write Martha Ross and Nicole Bateman for Brookings, in their Jan. 8 article titled, "Low unemployment isn’t worth much if the jobs barely pay." They pointed out that two-thirds (64 percent) of low-wage workers are in their prime working years of 25 to 54. "These statistics tell an important story: millions of hardworking American adults struggle to eke out a living and support their families on very low wages."

Following are some highlights from the Economic Policy Institute study:

*Historically, typical U.S. worker compensation between 1947 and the mid-1970s was stronger and  steadier, than in subsequent years. Since the late 1970s, growth has been slow and uneven. There were long periods of stagnant wage growth since 1979.  "Only in the tightest of labor markets did average wages for the bottom 90 percent rise in any meaningful way," the study found.

*Without the wage growth spurred by exceptionally low unemployment in the late 1990s and the last five years, wages for most workers would be lower today (in inflation-adjusted terms) than they were 40 years ago.

*White males continue to be the top earners. While the gender wage gap continued to shrink last year, a typical women was still paid 85cents on the typical man's dollar in 2019. And more education doesn’t close the gender wage gap. Even though they have higher levels of educational attainment, women with an advanced degree are paid, on average, less than men with a college degree.

*In 2019, wages for black workers exceeded their 2000 and 2007 levels across the wage distribution for the first time in this recovery.

But black–white wage gaps remain significantly wider now (14.9 percent) than in 2000 (10.2 percent). Wages are growing faster for white and Hispanic workers than for black workers.