The conundrum at the Federal Reserve has been wage growth, or rather wage stagnation. When an economy is on the upswing, as the U.S. economy clearly is, wages generally accelerate right along with it. That’s part of the supply-and-demand quotient: unemployment falls, wages rise. But this time around things are different. Are wages really languishing, and what jobs are still seeing the biggest jumps in salaries?
According to well-established economic theory, as unemployment drops—it’s now below 5%, compared to 10% in 2009—pay hikes, driven by a more shallow pool of available workers, should have been on an inverse course. Instead, we’ve seen annual average wage increases to the tune of 2% and slightly better—hardly enough to call this a robust recovery. On a broader scale, from 1983 to 2015, the Federal Reserve notes that yearly wage gains averaged 3.25%, far better than recent history.
The Federal Reserve Bank of San Francisco blames this “wage growth puzzle” mostly on retirees, according to a recent report. Baby boomers are retiring at a rate near 10,000 a year, and doing so when their salaries are at their highest. Those replacing them are younger and earn lower wages. What’s more, those who were stuck in part-time jobs and are now moving into full-time jobs are doing so at below-average wages. As a result, their entry into the full-time job market pushes down the average.
“Cyclical components, such as the entry of low-wage workers to full-time jobs, have combined with secular components, specifically the exit of higher-wage retirees, to hold down recent measures of overall wage growth,” the report says.
More Wage Gymnastics
ADP, the payroll-processing firm, used its database to break the numbers down further. ADP sees things another way. In its recent “Workforce Vitality” report, it found that overall wage growth for people on the job more than a year grew substantially better than new hires. “Stayers”—who represent more than 60% of all workers—celebrated 4.1% pay hikes in their wages, ADP found, versus a 2.1% overall gain in wages for the fourth quarter of 2015 (compared with the year-ago period).
That follows the same thinking as the Federal Reserve of San Francisco, which is charting people who have stayed at the same job for more than a year. That takes the outliers—retirees and new entrants—out of the puzzle.
“Being able to track the same large group of workers who are consistently employed gives us a much different look at wage dynamics,” says Ahu Yildirmaz, vice president and head of the ADP Research Institute. “Wage growth appears to be more robust than generally reported.”
That’s mostly true, too, if you’re a full-time worker and you switch to a new full-time job, according to ADP. With some exceptions, full-time folks who switched jobs saw their paychecks fatten by 4.7%, probably because most people don’t switch jobs for less money.
What Jobs Are We Talking About?
If you worked full-time in the leisure and hospitality sector, say managing a restaurant or performing in a play, job-hopping late last year might have garnered you an 8.2% average wage hike, according to ADP. If you worked in manufacturing or construction, you would have been better served staying at your job, where the average salary increase was 4.5% compared with switching, which only gained 2% in manufacturing and 3.4% in construction. And those who changed jobs in the resources and mining industry, which has seen hefty pullbacks tied to lower prices on oil, saw a decrease of 6.4% in salaries.
|YOY Wage Growth (Full Time)||Holders||Switchers|
|Resources and mining||0.3%||-6.4%|
|Finance and real estate||4.3%||6.6%|
|Professional and business services||4.4%||6.3%|
|Leisure and hospitality||3.9%||8.2%|
|Education and health services||3.7%||7.9%|
|Trade, transportation, and utilities||3.6%||4.6%|
Q4 2015 wage growth by industry. Source: ADP Workforce Vitality Report
To look at the picture more geographically, job holders living in the west saw the highest wage growth at 4.5%. The south, which is number two for employment growth, also has the tightest wage gains: 3.8% for stayers and 3.9% for switchers. On the flipside, the northeast is at the bottom rung in employment growth but the best place to change jobs, with a 5.8% pay hike for switchers. ADP thinks that’s because of a multitude of highly paid financial and tech jobs in the region. The midwest increase for switchers is 5.3%, while stayers see 4.1% gains.
Who Makes the Most?
The U.S. job rate is on track to swell 7% over the next decade. That would mean that by 2024, some 10 million more Americans will have jobs. But what kind of jobs are we talking about?
Not the type usually expected with a growing labor force, according to the Bureau of Labor Statistics. Those tend to be mid- to low-skilled jobs that don’t require experience or elevated levels of education.
Instead, the BLS sees health care as one of the hottest industries in the next decade, thanks to an aging population plus rapid and vast advances in medical technologies and treatments. And plenty of health care jobs offer over-the-top salaries (although certainly not all).
We often think of chief executive officers as being among the most highly paid workers out there, but they’re not. That distinction goes to physicians and surgeons. CEOs do make the top 10 list at BLS—at number 10. But the top nine roles are all in health care, including anesthesiologists, orthodontists, oral surgeons, and psychiatrists. Of the top 20, 14 are in some form of medicine, including pharmacists.
Besides CEOs, those not in health care include architectural and engineering managers, petroleum engineers, computer and information systems managers, marketing managers, and air-traffic controllers. All those positions pull down more than $120,000 a year.
In 2014, the latest figures available, primary care physicians had median annual paychecks of roughly $241,273, and physicians with medical specialties saw their annual income top $411,850, according to the Medical Group Management Association’s “Physician Compensation and Production” survey.
That’s a pretty comfortable level for many, but it’s nowhere near the norm. The typical American family income stood at $53,657 in 2014 (the most recent numbers available), which was down slightly from $54,462 the year before, according to the U.S. Census Bureau. Worse yet, it’s lower than it was in 2007, the bureau reported, thanks to wage stagnation.
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