Survey: Half of American workers haven’t gotten a pay boost this year

Survey: Half of American workers haven’t gotten a pay boost this year
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The job market may be booming, but many Americans aren’t feeling it in their wallets.

Half of U.S. workers haven’t received a pay boost in some form over the past 12 months, according to Bankrate’s December Financial Security Poll. That includes receiving a raise, taking a job with better pay or both.

The lack of pay increases comes at a time when job growth appears to be booming. U.S. employers have added new positions for a record 110 straight months, and the unemployment rate has plunged to a 50-year low.

The survey’s findings are also illustrative of a broader economic trend. Typically, as the pool of available workers starts to thin, research suggests that employers will boost pay to recruit more. For much of the expansion, however, that hasn’t happened.

But even though parts of the survey looked bleak, other figures suggest that the picture may be getting a little brighter. Nearly 49 percent of Americans reported seeing higher pay this year, up from 38 percent last year and the highest since 2016, according to the survey.

“Low unemployment and a tight labor market with more than one million open, unfilled jobs is benefiting workers, with more reporting pay raises and finding better paying jobs than each of the last three years,” says Greg McBride, CFA, Bankrate chief financial analyst.

Weak worker pay part of the economic story

Worker pay has been slow to climb throughout the current expansion — and the fact that many Americans aren’t seeing raises could be a reason why.

Average hourly earnings grew by 3.1 percent from a year ago, according to the Department of Labor’s November jobs report. But wages didn’t breach 3 percent annual growth until October 2018 — a threshold that economists say should’ve happened much earlier.

“All of this has been puzzling,” says Tara Sinclair, economics professor at George Washington University and senior fellow at the Indeed Hiring Lab. “It doesn’t fit with the standard models of employment. Given that we’re near record-low unemployment rates, we would think we would be at record high wage growth.”

Even the Federal Reserve is starting to pay attention. Fed Chair Jerome Powell noted during his semiannual congressional testimony in July that the labor market might not be booming as much as the headline numbers suggest. If it were, more workers would be seeing pay gains.

These conditions all influenced the Fed to reduce rates three times in 2019. The Fed mainly wanted to fend off downside risks to ensure that the economic expansion continued. The longer the good times last, the more likely it’ll pull in the Americans who have been left behind.

“Prosperity isn’t experienced in all communities,” Powell said in July. “Low- and moderate-income communities in many cases are just starting to feel the benefits of this expansion.”

The Fed has been saying that the U.S. economy is “at or near full employment” since the rate reached about 5 percent. U.S. central bankers care about full employment because it often leads to inflation, as employers boost pay. Today, however, the unemployment rate is even lower — 3.5 percent — while inflation is low.

Powell and Co. are convinced there must be more workers on the sidelines. That’s likely so, with the labor force participation rate still holding at historic lows.

Low interest rates would help the labor market run a little hotter, creating more opportunities and pulling those potential employees back in, says Jesse Rothstein, economics and public policy professor at the University of California, Berkeley, who directs the Institute for Research on Labor and Employment.

“One piece of this is that the Fed has to keep allowing the labor market to keep chugging away,” Rothstein says. “As the labor market has gotten stronger, many of those workers have come back to work.”

Economists also cite a number of other structural changes within the labor market. Globalization matched with decreasing unionization might be a big part of weak wage growth, Rothstein says. Employers may also have more market power today, he says.

Source: Bank Rate

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