Since the Great Recession of 2008, the U.S. economy has struggled to regain full momentum. This is most evident when you examine the earnings of most middle-class Americans. And a recent report by the U.S. Department of Labor seems to suggest that this trend shows little sign of abating.
The findings of this employment cost index report suggest that paychecks of U.S. workers grew at a very tepid rate this summer, rising a paltry 0.6% during the July-September period, compared to the April-June period. Overall during the past 12-months, pay and benefits have risen only 2%; well below the 3.5% to 4% that most labor economists feel is indicative of a healthy economy.
What all of this signifies is that there’s still an ample supply of workers for businesses to hire at much lower pay rates; an indication that the job market has yet to return to full health. Over the past year, employers have added 2.2 million new jobs which has resulted in a decline in the unemployment rate from 5.9% to a seven-year low of 5.1%. Nevertheless, wage advancement remains sluggish.
There is also the issue of the 6.5 million (at last count) Americans working part-time who really wish to work full-time. That accounts for about 2 million more workers than prior to the recession. And it is important to keep in mind that the unemployment figures have been skewed even further because millions more Americans have ceased looking for work altogether, even though they would take a job if offered one.
Federal Reserve officials view wages and salaries as the key metric in assessing the economy’s true health, because a sustained uptick in wages would signify a leveling out of the unemployment rate. As unemployment drops, businesses are often forced to increase their pay in order to attract and retain talent.
Unfortunately, according to many economic analysts, there are no signs of this trend occurring in the foreseeable future.
Upping The Minimum Wage: Help or Hindrance?
There has been a ton of media chatter this year about efforts by several states to boost the minimum wage. And for good reason, since wages are a hot issue, particularly among those Americans working in service-related jobs.
Unfortunately, the collateral damage is starting to rear its ugly head in states that have recently boosted the legal minimum wage. Take Seattle for example, which has been a hotbed of talk on this issue. According to the St. Louis Federal Reserve, which has been monitoring this development, the Emerald City began to experience declining numbers of restaurant employees around the first of the year, when the minimum wage increased to $9.47 per hour. This represents the highest minimum wage in the nation. The reported loss of 1,300 jobs between January and June is the largest drop off since the Great Recession of 2008. Moreover, 1,000 restaurant jobs were lost in May, following the minimum wage increase in April, the largest one-month job decline since a 1,300 drop during that recessionary period. This is in contrast to a national increase in restaurant jobs to the tune of 130,700, an overall 1.2% increase in employment in the Seattle area and a 3.2% restaurant employment increase in the State of Washington (excluding Seattle) – all during this recent period.
The bottom line is that small businesses like mom-and-pop restaurants and coffee houses lack the greater profit margins needed to withstand the expenses associated with a minimum wage increase. So they resort to cutting staff and reducing hours, paying fewer workers more money. Even well-funded enterprises like McDonald’s are reportedly pondering labor-saving methods like self-checkout kiosks, robots on the food production line and robots to manage expenses, all of which would lead to an overall reduction in staff numbers. ” Keep reading…