U.S. job market’s lingering weak spot: Stagnant pay

Some economists expect pay to pick up eventually as the job market keeps improving. They think wages have lagged because millions of people are still out of work—many of whom aren’t counted in the unemployment rate because they’re no longer looking for a job.
But others say they fear that pay has stagnated because of trends that will persist even after the economy has moved closer to full health.
They note that companies have been making more use of temporary and part-time workers, usually at lower pay, to replace full-time permanent jobs. And newer technologies have enabled businesses to produce more with fewer employees.
A survey of Harvard Business School graduates released Monday lends weight to that notion. Nearly half the respondents said they’d rather invest in technology than in workers. Just over 40 percent expect wages and benefits to decline over the next three years.
Economists are flummoxed by the way the historical relationship between pay and unemployment has eroded since the recession ended. Based on historical trends, the steady drop in unemployment should have raised inflation-adjusted wages by 3.6 percent by June, according to researchers at the Federal Reserve Bank of Chicago. That’s because employers have had to fill jobs from a smaller pool of unemployed people — a trend that normally forces them to pay more.
Instead, overall inflation-adjusted wages have essentially flattened since 2009.
That said, workers in some industries have fared better. For those in a category that includes data processing and analytics, as well as broadcasting, film and publishing, hourly wages have surged 4.6 percent in the past year. And pay is up at least 3 percent for financial services workers and wholesalers.
By contrast, wages are up just 1.3 percent for employees in education and health care.
So why has overall wage growth been so weak? Economists point to several factors.
The biggest is that there are still too many people desperate for work than is typical for a healthy economy. That makes it easier for employers to fill jobs without raising pay.
There are 227,000 fewer people with jobs than in November 2007, just before the recession began. Yet the working-age population is up 15.3 million since then. That’s kept the number of unemployed elevated: 9.6 million Americans, up from 7.6 million when the recession began.
But it’s not just unemployment that’s holding down wages. The many part-timers who would prefer full-time work are also competing with those who are out of work. There are 7.2 million involuntary part-timers, up from just 4.6 million in late 2007.
Half the economists surveyed by The Associated Press last month cited the high number of people without full-time jobs as the main reason wage growth has been weak.
The Chicago Fed estimates that if all measures of unemployment, including involuntary part-timers, had returned to pre-recession levels, paychecks after inflation would now be rising up to 1 percentage point faster.
Given these trends, people who do have jobs have less leverage to demand higher pay. Sixteen percent of working Americans say their pay hasn’t budged in the past year, up from 11 percent before the recession, according to research by Bank of America Merrill Lynch.
In a healthier economy, more people would seek higher pay elsewhere and quit their jobs once they found it. But the number who quit their jobs tumbled during the recession and has only partly recovered.