2015 Picks Up Employment Steam- Will You Will Be Getting a Raise?

The American economy is picking up steam and zooming forward. According to the Bureau of Labor Statistics the economy added 257,000 non-farm payroll positions in January (1). U.S. Labor Secretary Thomas E. Perez characterizes this employment increase as, "2015 is picking up right where 2014 left off – with strong, steady, sustained job growth that is leading a dynamic recovery" (2).  Great news that could have an impact on future wages but who will be getting a raise depends on market position.

Even though the unemployment creaked up from 5.6 to 5.7% much of this has been attributed to people jumping back into the job market. When people are not searching for work their numbers are not counted. However, as they engage back in their searches and applying the numbers become more accurate as previously unaccounted for people rejoin the statistical measurement. The value of labor is determined in part by the availability of labor; lower unemployment numbers are good.

The jobless rate is different based upon the demographics of the person. Jobless rates for adult men (5.3 percent), teenagers (18.8 percent) adult women (5.1 percent), whites (4.9 percent), blacks (10.3 percent), Asians (4.0 percent), and Hispanics (6.7 percent). Relatively low numbers could mean slack is being soaked up by the market but it will not influence all Americans fairly until labor demand rises more.

Wages and labor supply are integrally tied together and have a long history in historical analysis. For example, a paper out of the Federal Reserve Bank of Atlanta found that wages in high-skill occupations rose dramatically while middle and lower skilled occupations stagnated (Mandelman & Zlate, 2014). Those with higher skill demands in growing industries found themselves obtaining wages raises before others.

If we break labor supply into general and specific we will find where the highest increases of wages are likely to occur.  Those who have obtained specific higher levels of skills/education in advanced industry export oriented companies will see their wages rise substantially as their market supply dwindles. Those in the middle level skill/education will see modest increase while those in low skill/education markets will be the slowest to respond. 

Wage increased are based on economic activity and meeting the needs of the labor market with employable skills. Those who have access to educational opportunities, whether they be skilled labor or degrees, will see higher wages while those who have not obtained new skills will find their wages stagnated. Before low and middle income earners see their wages increase, significant slack will need to be soaked up through increased market demand. Raising earning potential requires a level of investment in the acquisition of new skills through training, skilled trades, experience, and college education.

Mandelman, F. & Zlate, A. (2014). Offshoring, low-skilled immigration, and market polarization. Working paper series (Federal Reserve Bank of Atlanta), 28.

 

Does the Improving Economy Offer Opportunities to Raise Social Mobility?

The word “economy” is on everyone’s lips.  Things are looking bright for those who have a stake in the economic system. Markers in the service and manufacturing sectors are progressive and provide opportunities to put people to work while lowering the nation’s growing income disparity. The new economy offers the possibility to resize an unbalanced ship so that it finds benefits in hydroplaning to new levels. 

The Institute for Supply Management’s non-manufacturing index increased to 58.7% while sixteen U.S. non-manufacturing industries led by construction and education also experienced growth (1).  To complement this growth the service sector also realized expansion adding further strength to the recovery and providing higher levels of employment.

According to the Commerce Department manufacturing also received positive growth numbers (2).  The U.S. is moving into a stronger competitive position that furthers its ability to maintain momentum. Manufacturing increases employment opportunities and heightens income opportunities for families that need a solid wage and opportunities.  

A particular problem rears its head when the cost of education is increasing thereby creating a class of people who do not have the skill to go to college or the financial resources to finish a degree program. The inability to obtain a meaningful education leaves them out of many highly skilled manufacturing jobs and thereby locking them out of Middle Class lifestyles. 

Despite the positive economy there are some serious risks if the income is not spread properly among varying social classes and peoples. According to a new report by Standard and Poor income inequality is reaching extreme levels that may hamper future national growth (3).  The problem has become so pronounced that it retards future forecasts by 2.5% creating a drag on the economy.

The benefits of improving on middle class wages and raising people out of poverty outweigh many other expensive programs. Those with financial resources and high incomes are becoming wealthier leaving behind the masses causing instability. Changing public policies and avoiding poor economic decisions is important for encouraging higher overall human development to meet national needs.

The S&P report also mentions that raising minimum wages is not the answer as even though income rises the opportunities may decrease leaving less total jobs. It could also push inflation rates where the dollar is worth less tomorrow than it is today. Part of income disparity is based in actual earning power beyond the amount of dollar bills obtained.

Education is a major component for social mobility. Traditional sports arena oriented college models have become unsustainable with its expensive tuition, declining state budgets, large buildings and the re-shifting of financial responsibility onto families. Reforming higher education will help in bringing more people forward with the necessary skills to work in this century helping them reach Middle Class status and creating greater social mobility that helps raise opportunities for the future of everyone.

Service Industry Not the Cause of Wage Polarization

Wage polarization is a growing concern among both academics and government officials. Wage polarization is an occurrence where lower skilled workers and higher skilled workers are vastly different in their earning potential. Research by Author and Dorn (2013) discuss the reasons why such polarization is occurring and which industries are raising lower skilled employment opportunities.

The advent of technology is here! Computerization of routine tasks is apparent and those who have not mastered new skills are finding their jobs displaced. The past 25 years have experienced a decline in lower skilled earnings and employment opportunities. The authors indicate that changes are likely to occur across four dimensions:

1.) Greater adoption of information technology;

2.) Reallocation of low-skilled workers from routine tasks to service occupations;

3.) Larger increases in both employment and wages at both the highly skilled and lower skilled labor markets;

4.) Larger inflows into both the high and low skilled labor markets.

The news isn’t all bad for lower skilled labor markets. Service industry workers have an easier time finding employment and higher wages. Between 1980 and 2005 the share of hours worked in the service occupations rose by more than 50%. Real wages also increased 11 log points significantly exceeding every other low skilled industry in the country.

The reason why this phenomenon occurs is because routine tasks are easily replicable by computers while the skills of communication and flexible customer care cannot be easily programmed into strict computer processes. The ambiguous nature of handling customers and their needs requires people who can make decisions on a constantly changing basis.

Who is capitalizing on new technology? Higher skilled and educated workers can use computers to complement their creative, abstract, problem-solving, and coordination skills. This is raising their productive power in society and naturally raising their compensation. A greater divide between the lower skilled displaced worker and the higher skilled worker is apparent.

The service industry is helping employ a greater proportion of displaced workers. It will be necessary to train low skilled workers to find value on the market and raise their market earning potential. Some will be able to move into the service industry while others will need to move into training programs. Those that do neither are more likely to enter the chronically unemployed market.