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4 Reasons Why New Jobs Are Paying So Much Less

There are at least four economic trends that are keeping wages for new jobs low. I know this. I see this in my own business. I see it among my client base.
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Jobs are recovering, but, unfortunately, wages aren't.

As the American Enterprise Institute's James Pethokoukis summarizes:

"A new study from the U.S. Conference of Mayors and IHS Global Insight gives the discouraging news. In 2008 and 2009 the U.S. economy lost 8.7 million jobs. By examining the sectors from which the jobs were lost, most notably manufacturing and construction, we find that the average annual wage in sectors (current wages weighted by number of jobs) where jobs were lost in the downturn was $61,637. A similar accounting of the jobs gains through 2014 q2 shows average wages of $47,171 per year. This wage gap, at 23%, is significantly larger than that of the earlier recession and recovery, and implies $93 billion in lower-wage income. Extensive job losses in high-wage manufacturing ($63K) and construction ($58K) sectors were replaced by jobs in the lower-wage sectors of hospitality ($21K), health care ($47K), and administrative support ($37K)."

There are at least four economic trends that are keeping wages for new jobs low. I know this. I see this in my own business. I see it among my client base.

There remains less of a demand by employers to hire more people. And when we do hire, we're not willing to pay more, if we can avoid it. And we can avoid it. We can outsource. And we do. oDesk, an outsourcing marketplace (which recently merged with Elance, another outsourcing service) reported that the number of employers using outsourced contractors on their site rose by more than 900 percent between 2009 and 2013, and, in that same period, the number of working freelancers increased 1,000 percent per quarter. I see this all the time. Why hire someone full time and incur all the costs of employment (taxes, health care, etc.) when you can hire a skilled person by the hour or per diem from any number of great sources online and around the world? And if you're independent-minded, why be saddled with a job at one company when you can outsource your services to multiple companies, at a higher rate per hour (this, by the way, is not figured into the wage calculation above) and with greater flexibility?

There is better technology to make people even more productive. Where there were once shifts every eight hours, requiring more bodies and overhead, businesses like mine now staff themselves almost round the clock with one set of employees, because we can get more work done with the same group. OK, so maybe we're a few years away from the days when unmanned drones and driverless trucks will be delivering our products. But we have technology today that didn't exist a decade ago, and it's reducing the amount of people we need to employ. We have online knowledge centers so customers can research, do work on their own, or submit problems. We have mobile devices that enable our people to work on the go. Manufacturers are investing in machinery that makes product with less human involvement. There are workflows to automatically send invoices or reorder products. There are collaboration systems from the likes of Microsoft, Google, and others to help us do work together, wherever and whenever. Even our financial systems, led by products such as Xero, Square, ZenPayroll and Expensify, allow our employees to invoice, receive cash, enter hours, and track expenses on their own and without the need of additional people to do the data entry.

I see a general lack of commitment among my client base. The economy has been slow. The mood in Washington is not positive. Rightly or wrongly, many of my clients seem to perceive an overall anti-business climate. As a result, I still see these businesses sitting on their cash, and they're in good company, with a record $1.64 trillion in cash being held by corporate America at last count. Sure, they're investing more when a project has a high chance of a positive ROI. They're also scooping up debt at historically low rates if they can. But they are holding back on anything that is more risky. They are averse to incurring the cost and commitment of staffing up in an environment where the uncertainties of rising health care, taxes and regulations outweigh the benefits of making such investments.

Finally, the industries that are growing are doing so with low-wage jobs. According to a recent New York Times report, a study from The National Employment Law Project "...found especially strong growth in restaurants and food services, administrative and waste services, and retail trades. Those industries--which often pay wages at the federal minimum, accounted for about 40 percent of the increase in private sector employment over the past four years." Another report shows that 12 out of 20 fastest-growing businesses are in construction--an industry that was knocked on its bottom during the recession and is only now starting to claw its way back, but as a shadow of its former self. I see this everywhere. People are starting businesses like services, contracting, consulting, and small shops and restaurants because there of the low capital requirements to do so. Banks are not lending to these companies--they, too, learned their lesson from the recession. These businesses have very few people, and those that they do employ are lower-skilled workers. Sure, we hear of the multizillion dollar venture-backed tech startups in Silicon Valley (many of whom outsource their higher-skilled development work overseas), but other than the handful that make the news, the vast majority of them struggle to get noticed, to get financing, and to survive.

So there are more jobs. But they're paying less. I'd frankly rather pay my existing people a little more to get things done in order to avoid hiring a new person at a higher wage. This is why new jobs added since the recession are not paying well. Clearly, I'm not alone.

Last updated: Aug 13, 2014

GENE MARKS | Columnist | Owner, Marks Group

Gene Marks is a columnist, author, and small-business owner. He oversees the Marks Group, a 10-person technology consultancy to small and medium-size businesses. A certified public accountant, Marks has also worked in the entrepreneurial services arm of KPMG. He writes for The New York Times, Forbes, and The Huffington Post.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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