Business

In the best year for job creation since 1999, wages barely grew

Last year was the best year for job creation since 1999. Unemployment dropped to its lowest rate since 2008. By most measures, 2014 was a great year for the U.S. job market.

But a question remains for many workers: Where’s my raise?

According to Labor Department data released Friday, average hourly wages rose only 1.7 percent over the year, barely keeping ahead of consumer price increases.

“It’s a puzzle, to tell you the truth,” said economist Harry Holzer. “Six years into the recovery, we’re still concerned about wage stagnation.”

Holzer, a public policy professor at Georgetown University and former chief economist for the U.S. Department of Labor, said stuck-in-the-mud pay means that employers are getting the work done without needing to pay more to keep or attract workers.

As a result, if it weren’t for lower prices at the pump — which effectively leave more discretionary money in consumers’ pockets — most people may feel they’ve lost ground, especially if they’re shouldering higher costs for their health insurance benefits.

Hope is pinned on 2015 — year seven of the economic recovery — that base pay gains will spread throughout the labor market. Some of that hope is pinned on minimum wage increases that went into effect Jan. 1 in dozens of states and cities. Such increases generally tend to push wage rates higher across the board.

But first, to recap current pluses from the December jobs report, which also wrapped up the year’s data:

▪ Nearly 3 million jobs were added to the U.S. economy last year, a net gain of about 252,000 in December alone, and data revisions pushed the previous two months’ job creation 50,000 higher than initially published.

▪ The national jobless rate sank to 5.6 percent from 5.8 percent in November, dropping 1.1 percentage points over the year.

It was, indeed, a positive year.

Except for two things: Those stagnant wages and the naggingly low labor market participation rate.

The participation rate indicates that only 77 percent of people between the ages of 25 and 54 — prime work years — were employed. That’s down from 80 percent pre-2008.

And for the population as a whole, the job market participation rate of the 16-and-over population sank at year’s end to 62.7 percent. That’s a 37-year low in the share of people who were working or actively looking for work.

People not in the labor force could be retired, or be drawing disability, or be full-time students, or be incarcerated, or be not working by choice because they are raising children or simply don’t need the income. And a shrinking share could be temporarily sitting out, still so discouraged in their job hunts that they’ve stopped looking.

In fact, the drop in December’s unemployment rate was mostly due to more people leaving the workforce than to more people getting jobs.

Holzer noted that some of the people who are sitting out the labor market by choice represent potential talent — “they’re part of the reason the reasonably tight labor market isn’t tight enough for employers to have to raise wages.”

Because nearly two in three working-age people are working, that puts the moribund paycheck issue front and center.

The labor bureau’s survey charted a 0.4 percent wage gain in November, but December followed with a 0.2 percent decline. That equaled a 5-cent drop in average hourly pay.

So why aren’t overall U.S. wages rising?

For one thing, some employers are getting work done through globalization — hiring overseas workers more cheaply than they’d have to pay here.

Some employers are hiring temporary or contract workers — who may carry lower costs than adding “permanent” employees.

Some employers are getting work done with part-time employees who don’t ramp up payroll costs with benefits.

Also, post-recession job growth has been strong in low-wage or entry-level work in retail, food service and health care.

“Employers are paying premiums for some highly skilled workers, but not for enough overall to raise wages,” Holzer said. “Historically, we had trade unions that helped bargain for higher wages when corporate profits grew, but unions now represent just 6 percent of the private workforce, so there’s not much power there.”

Economists also note that flagging pay growth may help influence the Federal Reserve to hold off on raising interest rates, a move it has signaled against in the first quarter this year anyway.

Federal Open Market Committee minutes released Thursday show concern over a lack of “clear evidence of a broad-based acceleration in wages.”

Lindsey Piegza, chief economist at Sterne Agee, echoed that concern after Friday’s job report. The “outright decline in wage pressure undermines confidence” that the Fed will raise interest rates in the near term, she said.

While many everyday workers have yet to see trickle down from rising corporate profits, it’s worth noting a few other positive signs from the jobs report.

The Labor Department’s highest measure of unemployment, which includes “disillusioned” workers who are temporarily sitting out and workers who are part time not by choice, is getting a lot better.

A year ago, the top joblessness measure was 13.1 percent. It’s down to 11.2 percent now.

And the share of unemployed who have been looking for work for 27 weeks or more, the official definition of long-term unemployment, slipped to 31.9 percent of the total unemployed in December 2014, compared with 37.3 percent a year earlier.

All in all, there is “really solid momentum in U.S. growth,” said Michael Feroli, chief economist at JP Morgan Chase & Co.

“There are not a lot of places in the world where we see that these days. The oddity in the report is the move down in average hourly earnings.”

Star news services contributed to this report.

To reach Diane Stafford, call 816-234-4359 or send email to stafford@kcstar.com. Read more from Diane at kansascity.com/workplace. Twitter: @kcstarstafford.

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