Business
12:17 pm
Fri August 2, 2013

U.S. Job Growth Slows A Bit As Wages Shrink

Originally published on Fri August 2, 2013 1:10 pm

Employers added 162,000 workers in July, and the U.S. unemployment rate slipped to 7.4 percent, the lowest level since December 2008, the Labor Department said Friday.

But while the number of jobs did increase, the hiring pace was slower than in the spring, marking a setback for unemployed Americans who had hoped for a better summer.

"The labor market begins the second half of 2013 with a fizzle," economist Heidi Shierholz, with the Economic Policy Institute, says in her analysis of the data. "At this rate, it would take six years to ... get back to health in the labor market."

Over the past year, the economy has added an average of 189,000 jobs per month. As jobs have grown, the jobless rate has dropped from 8.2 percent one year ago. In June, the rate was 7.6 percent.

To some extent, the falling unemployment rate also reflects a workforce that is shrinking as baby boomers retire and young people stay in college longer. Also, some people are staying home with children or elderly parents, and millions have stopped applying for jobs because they think it's hopeless. When fewer people seek work, then the unemployment rate looks smaller.

Another labor market measure that has been getting smaller is paychecks. The July report showed average hourly earnings slipped by 2 cents to $23.98. Over the past year, hourly earnings have risen only 1.9 percent. That's about the same rate of increase as consumer prices.

"After inflation, that's like no growth at all," says economist Patrick Newport, of IHS Global Insight.

Workers' wages "are basically staying put," Newport says. Income stagnation over a long period is not typical for this country. "Normally, your living standards are rising — you are living better than your parents did."

The stagnation is especially apparent for minimum wage workers. Congress last raised the federal wage floor in July 2009 — up to $7.25 an hour. After adjusting for inflation, that wage now provides about 20 percent less purchasing power than it did in 1968, according to the Economic Policy Institute, which advocates for low-income workers.

Newport says the reason for the wage freeze is clear: With 11.5 million people still seeking work, employers can readily find replacements for those who demand more pay.

"We still haven't recovered the jobs lost in the recession," he says. "It's a really bad labor market."

How bad? In the summer of 2007 — before the recession began — the unemployment rate was running at about 4.6 percent, compared with this summer's average of 7.5 percent.

Among those frustrated by low wages are many fast-food workers. In recent weeks, workers in several cities, including New York, St. Louis, Milwaukee, Chicago, Detroit and Kansas City, have held protests at McDonald's, Taco Bell, Popeye's and other similar restaurants. They have been demanding $15 an hour, far more than the typical fast-food pay of about $9 an hour.

Their wage-hike campaign has been backed by the Service Employees International Union.

Restaurant owners say they can't raise food prices to offset higher wages because too many customers are struggling financially. McDonald's, for example, has seen its earnings lag as customers pinch pennies.

But while the fast-food industry has a surplus of potential workers and weak pricing power, some sectors of the economy, especially those involving energy and computers, are reporting shortages of people with the right skills. Most economists say the skills gap is a big part of the reason that 3.8 million jobs are going unfilled right now.

To get workers into those open positions, employers are offering hefty paychecks. For example, the National Association of Colleges and Employers reported this spring that students graduating with petroleum engineering degrees are commanding starting salaries of $93,500. Computer engineers start out at $71,700.

"People who are highly educated are being well compensated, and those who don't have a college education are falling behind," Newport says.

Political leaders are divided on how to get out of the wage-freeze trap for unskilled workers. The White House wants employers to boost wages.

"When middle-class families have less to spend, guess what, businesses have fewer consumers," President Obama said last week at Knox College in Galesburg, Ill.

But conservatives say that when fast-food restaurants and discount stores can contain compensation costs, they can afford to help the economy by providing foods and goods at low prices.

Also, restaurant owners say low wages allow them to hire more people. In the July jobs report, the sector involving food services and drinking places did show good growth, adding 38,000 jobs for the month, or 381,000 over the past year.

"A starting-wage increase will reduce hiring, weaken business growth and reduce opportunities for job seekers and employees at the margin of the workforce," Dawn Sweeney, CEO of the National Restaurant Association, said in a statement about efforts to raise the minimum wage.

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