Employment Is Up. Paychecks, Not So Much

Jan 10, 2015
Originally published on January 10, 2015 8:31 am

The U.S. economy saw the strongest job growth last year since 1999, according to statistics released Friday by the Department of Labor. The country gained another 252,000 jobs in December.

That's the good news — but this jobs report also dashed some hopes for fatter paychecks. Employers are hiring more people, but overall, the wages they're paying remain flat.

A month ago, it seemed wages were starting to pick up — but those November numbers were revised lower. In December, wages actually fell slightly.

"There is this ongoing puzzle, and economists are trying to figure this out," says Harry Holzer, a former chief economist for the Labor Department.

Holzer says that, historically, when unemployment has fallen to a number like December's 5.6 percent, the increased demand for labor has pushed wages up. Not this time.

"How can it be that we haven't seen any growth, adjusted for inflation, so far?" he asks. "Probably the real answer to that is that there's still more slack in the labor market."

In other words, the unemployment rate is no longer a good yardstick. Many workers have dropped out of the labor force or are working part-time, and those people are not captured in the unemployment rate figure.

Most agree that if employers keep hiring more workers, at some point, wages will rise — but the question is, by how much? Holzer says if you look back at the 30-year period after World War II, wages rose rapidly.

"The rising tide was lifting all the boats," Holzer says. "You had strong wage growth, year-in, year-out, and over a 30-year period the average worker's earnings were more or less doubled."

Since the early 1970s, though, it's been a very different story. Holzer says overall wages, adjusted for inflation, have only risen 20 percent since 1973. For a big chunk of what used to be the middle class — working-age men with a high school education — wages haven't risen at all. In fact, they've fallen.

"All less-educated men are earning less than they did 40 years ago," he says. "That's just a really new story in American history. People ought to know that that's really different than anything we've experienced in the past."

That's troubling to liberal economists and also to conservative ones like Michael Strain, a labor economist with the American Enterprise Institute.

"I'm very concerned about it," Strain says. "I think that taking the short-term view, there's a policy response, which is for the Fed to continue its campaign of stimulating the economy."

Longer-term, most agree the American workforce needs better training and education. Higher-skilled jobs mean more money and a better future.

Speaking Friday in Tennessee, President Obama announced an ambitious new plan to make community college free for all Americans.

Betsey Stevensen, a labor economist on the president's Council of Economic Advisors, says that college is basically is the new high school when it comes to having skills to get a well-paying job. A century ago, Stevenson points out, the U.S. made high school free.

"When we decided to make high school free and universal, the rest of the world laughed at us and called us wasteful," she says.

But it paid off big-time, she says, and the administration's hoping free community college will as well.

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SCOTT SIMON, HOST:

The U.S. economy saw the strongest job growth since 1999 last year. That's according to the latest statistics out of the U.S. Labor Department yesterday. The country gained another 252,000 jobs in December. That sounds good news, but as NPR's Chris Arnold tells us this latest jobs report also dashed some hopes for bigger paychecks.

CHRIS ARNOLD, BYLINE: If American workers had to pick a song to play for their bosses, a good choice might be this little number from the faux-rock band Spinal Tap.

(SOUNDBITE OF SONG, "GIMME SOME MONEY")

SPINAL TAP: (Singing) Do I have to come right flat out and tell you everything. Give me some money. Give me some money.

ARNOLD: Money is the rub with this recovery. Employers are hiring more people. That's good, but overall the real wages that they're paying remain flat, and this jobs report in particular was disappointing. A month ago it looked like wages were starting to pick up, but now those November numbers were revised lower and in December wages actually fell a bit.

HARRY HOLZER: So there is this ongoing puzzle and economists are trying to figure this out.

ARNOLD: Harry Holzer is a former chief economist for the Labor Department. He says the puzzle is that the official unemployment rate has now fallen to 5.6 percent. And, historically, that's meant that there's enough demand for labor to push up wages. So...

HOLZER: How can it be that we haven't seen any growth, adjusted for inflation, so far? Probably the real answer to that is that there's still more slack in the labor market.

ARNOLD: In other words, the unemployment rate just isn't as good a yardstick this time around. Many workers have dropped out of the labor force or are working part time. That's not captured in the unemployment rate figure. Now, just about everybody agrees that if employers keep hiring more workers at some point wages will rise, but the question then is by how much? Holzer says if you look back at the 30-year period after World War II...

HOLZER: The rising tide was lifting all the boats, so you had strong wage growth year-in, year-out, and over a 30-year period, you know, the average worker's earnings were more or less doubled.

ARNOLD: Since the early 1970s, though, it's been a very different story. Holzer says overall wages, adjusted for inflation, have only risen 20 percent since 1973. And when you look at big chunks of what used to be the middle-class - take, working-age men with a high school education - their wages haven't risen at all. In fact, they've fallen.

HOLZER: All less-educated men are earning less than they did 40 years ago. That's just a really new story in American history. You know, people ought to know that that's really different than anything we've experienced in the past.

ARNOLD: And that's troubling to both liberal and conservative economists. Michael Strain is a labor economist with the American Enterprise Institute.

MICHAEL STRAIN: I'm very concerned about it. I think that taking kind of the short-term view, there's a policy response, which is for the Fed to continue its campaign of stimulating the economy.

ARNOLD: Longer-term, most everyone agrees it'll be important to better educate and train the American workforce. Higher skills mean more money and a better future. For his part President Obama yesterday spoke at a community college in Tennessee.

(SOUNDBITE OF ARCHIVED RECORDING)

PRESIDENT BARACK OBAMA: I'm announcing an ambitious new plan to bring down the cost of community college tuition in America. I want to bring it down to zero.

(APPLAUSE)

OBAMA: We're going to - I want to.

ARNOLD: The president called for two free years of community college for all Americans.

(SOUNDBITE OF ARCHIVED RECORDING)

OBAMA: I want to make it free.

(APPLAUSE)

ARNOLD: Betsey Stevensen is a labor economist on the president's Council of Economic Advisers. She says, basically, college is the new high school when it comes to having skills to get a good paying job. And a century ago, of course, we made high school free.

BETSEY STEVENSEN: When we decided to make high school free and universal, the rest of the world laughed us and called us wasteful.

ARNOLD: But Stevensen said it paid off big-time and the administration's hoping free community college would as well. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.