Official Statistics Show Wage Growth, But That’s Due to Low-Wage Job Losses

The spike in wage growth amid the coronavirus pandemic is an “illusion” driven by disproportionate job losses amid low-wage workers, according to a study by the Federal Reserve Bank of San Francisco.

Earnings have steadily risen amid the pandemic despite, or rather because of, an economic crisis that has led to tens of millions of job losses and business closings. But the increase is a “false signal” that is “almost entirely attributable to job losses among low-wage workers,” Mary Daly, the head of the San Francisco Fed, and her team said in an letter on Monday.

Data shows that the average weekly earnings for full-time employees has grown by 10.4% over between spring of 2019 and spring of 2020, the fastest rate in nearly 40 years. Wages have grown 6.4% faster over that stretch than during the final three months of 2019.

“The median usual weekly earnings measure that we focus on here is not an exception. Other measures of wage growth — like average hourly earnings and compensation per hour — show similar spikes,” Daly said, but in this case the growth “primarily reflects the departure of low-wage workers who have been laid off due to coronavirus… and are no longer counted in the aggregate wage series.”

Low-wage workers have been disproportionately affected by pandemic job losses. The number of full-time job losses since March are nearly twice as high as the number during the Great Recession, according to the study, with 17% of the full-time labor force losing their jobs since the pandemic began. Roughly half of these workers are not classified as unemployed because they are not actively searching for a new job.

Workers in the bottom 25% of earners made up about half of the job losses, the researchers found, while the top half of earners accounted for about a third of the layoffs.

Looking at the earnings of workers that have been continuously employed throughout the pandemic, the economists found that the 10.4% wage growth rate is nearly 8% higher than the growth rate for employees who have kept their jobs. Wage growth among continuously employed workers has slowed by 2.4% since the end of 2019.

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“Therefore, the recent spike in aggregate nominal wage growth does not reflect the benefits of pay raises and a strong labor market for workers,” Daly and her team said. “Instead, it is the result of the high levels of job loss among low-income workers since the start of the pandemic.”

These job losses, they said, “have distorted measures of aggregate wage growth,” which means the measure “should not be seen as indicative of a recovering labor market.” In fact, the trend will likely result in standard growth measures underestimating “the reduction in labor market slack when the economy recovers.”

“In the wake of the virus, evaluations of the labor market must rely on a dashboard of indicators, rather than any single measure, to paint a complete picture of the losses and the recovery,” Daly and her team said.

The analysis dovetails with previous studies since the pandemic hit. A study by researchers at the University of Chicago’s Becker Friedman Institute in July found that just 9% of highest earners were laid off amid the business closings while the brunt of job losses fell on the lowest-earning workers.

That study’s authors similarly argued that the increase in wage growth was “entirely” the result of job losses among low-paid workers. The study also found that nearly 7 million workers who remained on the job experienced wage cuts while many others did not get their scheduled wage increases.

The researchers noted that low-wage workers were more exposed to the effects of the lockdowns because many work in hard-hit industries like food services, retail, and entertainment. Workers at small businesses were also disproportionately affected.

Another recent study found that low-wage workers have also increasingly faced wage theft amid the pandemic. A paper released this week by the left-leaning think tank Washington Center for Equitable Growth found that minimum wage violations have roughly doubled compared to the period before the pandemic.

Workers who were targeted by these violations lost about 20% of their owed hourly wages, according to the paper. These violations disproportionately affected Black, Latinx, and female workers. Noncitizens were more than twice as likely to experience minimum wage violations and Latinx workers were 84% more likely to experience minimum wage violations. Black workers and women were nearly 50% more likely to experience minimum wage violations than white people and men. Noncitizen Latinx women and noncitizen Black women were nearly 400% more likely to experience a minimum wage violation than white male citizens.

One of the key drivers behind the trend is the lack of job options available to low-paid workers in hard-hit industries.

“In slack labor markets with high unemployment, we know that workers are just going to be less likely to come forward because they’re more afraid of losing their jobs,” lead researcher Janice Fine, a researcher at the Center for Innovation in Worker Organization at Rutgers University’s School of Management and Labor Relations, told The New York Times.

States and local governments also have fewer resources to devote to enforcement of minimum wage laws, the researchers said.

“We anticipate the coronavirus recession will result in increased violations. But as high unemployment adds to workers’ desperation to maintain any job, the likelihood that low-wage workers will complain to an enforcement agency will decrease,” the researchers said. “Because the predominant U.S. labor market enforcement model relies on complaints to trigger an investigation, workers most impacted by the coronavirus recession are at risk of being largely overlooked by regulators unless agencies embrace a different enforcement framework.”

While the lowest-paid and most vulenrable workers have faced untold challenges during the health and economic crisis, many companies have tried to shield their top executives from paycuts even though CEO pay rose 14% last year, according to a study by the Economic Policy Institute. The average CEO now earns 320 times as much as a typical worker, according to the analysis.

Though many companies did reduce CEO salaries, a survey of about 3,000 companies in July found that “only a small percentage of the companies cut salaries for the senior executives at all” while two-thirds of CEOs that did take paycuts only had their salaries reduced by an average of 10% of less, according to the Times. Even among those, many of the companies in the survey also simply deferred salaries for their top executives.

Yet CEO salaries are only a partial measurement of their pay, since executives compensation packages are typically much larger than annual salaries. When accounting for bonuses and stock awards, many CEOs saw little reduction to their compensation, if at any.

“These executive pay cuts, I think, are largely symbolic,” David Lewin, professor emeritus of management and organizations at the University of California, Los Angeles, told Marketplace. “So if your compensation is heavily based on the stock shares you own in your company, you might cut your pay in half, but your stock shares might rise five times that much.”