U.S. recovery finally aiding most workers in a big way

By Nelson D. Schwartz, New York Times News Service

Saturday, Jan. 7, 2017 | 2 a.m.

It has been a long time coming — eight years, in fact — but the economic recovery is finally showing up in the average U.S. worker’s paycheck in a big way.

There have been plenty of winners in the recovery, which began in mid-2009: companies, homeowners, investors and, especially, households at the apex of the economic pyramid. But the paucity of gains in take-home pay has stoked anxiety and frustration for many others, a factor in the wave of discontent that President-elect Donald Trump rode to victory in November.

But even as Trump prepares to succeed President Barack Obama in two weeks, the Labor Department reported Friday that average hourly earnings rose by 2.9 percent last year, the best annual performance since the recovery began.

And many economists expect the trend to gain momentum this year, as a tighter labor market forces employers to pay more to hire and retain workers.

“This is a turning point for the overall economy,” said Diane Swonk, a veteran independent economist in Chicago.

While wage growth was robust last year, government data for December showed a more tepid increase in employment, with 156,000 jobs added during the month, and a slight uptick in the unemployment rate to 4.7 percent.

Until recently, a rise in salaries one month would peter out the next, but the upward trajectory in 2016 reflects wage gains even for Americans at the low end of the pay scale, Swonk said. Leisure and hospitality workers, for example, saw hourly earnings jump 4.4 percent from a year earlier, equal to the increase enjoyed by employees in the surging technology sector.

To be sure, a number of the economic problems cited by Trump during the campaign remain: millions of former workers not even looking for jobs, ebbing factory positions and fewer opportunities for the 55 percent of Americans without college degrees or other post-high school credentials.

“Strong economic growth doesn’t really matter if it’s not widely distributed,” Swonk said. “You can have a better economy but still not good enough for people who aren’t participating at all.”

A more comprehensive government barometer of unemployment, which includes workers forced to take part-time jobs because full-time positions were not available, stood at 9.2 percent in December, a much higher level than at this point in past recoveries.

But rising wages should counter the economic undertow, especially if the gains remain broad-based. And while a 2.9 percent increase may not sound like much, it goes much further because inflation is about 1.7 percent.

Economists expect wages to rise by up to 3.5 percent in 2017 — still below the gains many workers saw in the recovery of the mid-2000s, and in the tech-fueled boom of the late 1990s.

Although not reflected in the December figures, many low-wage workers are getting raises this year because of state increases in the local minimum wage. Some of the increases were substantial, with Arizona, Maine and Washington each raising the floor by $1.50 or more an hour.

Even in California, where, at 50 cents an hour, the wage gain is not as steep, one in 10 workers has gotten a raise. And minimum-wage gains can have a spillover effect, pushing up pay for workers just above the bottom salary tier.

For all his criticism during the campaign of Obama’s economic stewardship, Trump will inherit an economy that is fundamentally solid. Consumer sentiment, corporate profits and the stock market are all at or near multiyear highs.

On Friday, Wall Street embraced the not-too-hot, not-too-cold labor market figures, lifting the Dow Jones industrial average close to 20,000 and a new nominal record.

Investors and traders are watching the jobs data closely for clues about when the Federal Reserve Board may next raise interest rates.

Last month, the Fed increased interest rates for only the second time in a decade, and policymakers signaled that three more increases could come this year. The wage gains are among the reasons the Fed is likely to stick to that plan, Swonk, the Chicago economist, said.

Monthly job creation last year was well below the 236,000 average for hiring in 2014 and 2015. But with the economy close to what Fed policymakers and other experts consider full employment, employers are increasing wages, to retain workers and to attract new ones.

While the minimum wage increases provide a floor when it comes to pay, the ceiling continues to rise in fields like financial services, sales and technology, said Tom Gimbel, chief executive of LaSalle Network, a Chicago staffing company.

“Across the board, I see more aggressive salaries being offered by corporations than at any time in the last 10 years,” Gimbel said.

Seasoned sales representatives are drawing base salaries of $150,000 a year, compared with $125,000 two years ago, according to Gimbel. Entry-level software developers who once started at around $50,000 a year can now command $70,000.

Other executives in the Midwest also report upward pressure on wages, including in grittier settings than the white-collar fields where engineers and financial professionals cluster.

At Lou Malnati’s Pizzeria, which has 46 restaurants in the Chicago area and one in Phoenix, entry-level pay in hourly positions like server, cook and dishwasher is about $11.50 an hour, compared with $10 an hour three years ago.

Mark Agnew, the chain’s president, said most of the increase was a result of the steady rise in Chicago’s minimum wage, which has gone from $8.25 in 2014 to $10.50 now. It is set to hit $13 by summer 2019.

“We want to stay ahead of the minimum wage because we want to attract the best talent,” Agnew said. A substantial portion of the chain’s 3,000 workers have been with the company for more than 10 years, a rarity in the high-turnover restaurant industry that is another benefit of the slightly higher wages.

Economists and politicians have long debated whether raising the minimum wage ultimately hurts workers as companies cut positions or leave them unfilled in the face of rising labor costs.

So far, that has not been the case at Lou Malnati’s, Agnew said. The chain has opened about a dozen new locations in the past three years, adding about 600 workers to its payroll overall.

“It’s very tricky, and I know the minimum wage may erode job creation in some industries,” he said. “But in my own company, it hasn’t hurt hiring.”