Are Wages Increasing For The Employed?
A recent report released by the Bureau of Labor Statistics shows that despite the unemployment rate's current level of 9.8 percent, wages for many employed workers have grown. Some experts laud this as a possible indication of economic recovery, while others dispute the claim, based on a number of factors.
According to the report, which collected data from Sept. 2008 to Sept. 2009, average weekly earnings for workers in the private sector have risen by 2.5 percent from $612 to $616, dipping slightly from $618 in August. However, the report also indicates that the average workweek has edged down over the past year by .6 hours, providing fuel for those who don't see much hope in the numbers.
"It's almost a statistical illusion," says Bryce Ward, senior economist at Eugene, Oregon-based consulting firm ECONorthwest, who says there are a myriad of possible explanations for the rise in wages. One, in particular, is the notion that most employers refuse to lower wages during an economic downturn – a phenomenon many refer to as the "sticky wage theory" – and find other ways to offset costs, such as cutting works hours and health benefits while offering nominal wage increases, to avoid driving away employees.
"A sufficient number of firms are cutting health benefits and giving slightly more cash," Ward says. "Instead of giving you $100 in benefits I'll give you $50 more (in pay)." The recent increase in the national minimum wage from $6.55 to $7.25 could also affect the average wage earnings, he says, as well as the extra workload left over after layoffs.
"You've got more unemployed workers, but those who are working are maybe doing more work and getting paid a little more," says Ward. "It's certainly cheaper for a firm concerned about expansion to pile a little bit more work and pay them a little more, than to hire another worker."
A recent analysis of growing wages by New York Times economic columnist David Leonhardt drew enough ire from online readers to cause moderators to cut off the comment board. The column, which expressed the possibility of good news within the statistics, was met with personal anecdotes of pay cuts, frozen salaries and slashed benefits. But despite the dissenting view, Randy Eberts, Ph.D., president of the Kalamazoo, Mich.-based W.E. Upjohn Institute for Employment Research, contends that the raised wages "bodes well that things are beginning to turn around."
Eberts also says the numbers could be the result of employers making wages more competitive, as to retain their most integral employees. "What happens in times like these is companies want to hold on to the qualified workers," he says. "They hate to let go of many of the other ones, but still, they're finding a difficult time filling positions for people with certain skills and talents."
Though it will be a while before the unemployment rate starts to shrink, Ebert adds, he sees job security as a potential effect of the raised wages.
"For those who do have a job, there seems to be somewhat of a firmness in the labor market," he says.