Experts worry stagnant wages are delaying economic recovery
Jim Talerico got a $900 raise this year, but he isn’t happy about it.
“It’s a terrible wage,” said Talerico, a part-time faculty member in Robert Morris University’s English department. “Now I’m making a whopping $14,400.”
It was the first pay raise in 10 years for the 54-year-old Ingomar resident. Even with the $13,500 he earns from his other part-time teaching job at Community College of Allegheny County, he said a barista job at Starbucks looks tempting. At least it would come with benefits.
Working Americans have had to make difficult choices — from canceling doctor’s appointments to cutting their grocery budgets — as their paychecks barely keep up with the cost of living.
Consumer spending drives 70 percent of economic activity, and wage stagnation has been a stubborn problem that might be holding back the recovery as other measures such as unemployment improve.
Average hourly pay has risen just 2 percent during the past year. Adjusting for inflation, the median household income in 2013 barely budged from the year before, the second consecutive year that there has been essentially no change, according to recent Census Bureau data. That followed two consecutive years of declines and marks an 8 percent decline from 2007, when the recession began.
Millions still unemployed
The issue has concerned economists, who are waiting for the recovery to pick up steam as more Americans return to work and productivity grows.
“The economy is not growing fast enough,” said Mark Price, an economist at The Keystone Research Center. “It’s not just a question of the unemployment rate, (gross domestic product) growth. It’s weak growth.”
There are a variety of theories about why wages have lagged. One is that employers haven’t been forced to raise pay.
Despite a 5.9 percent unemployment rate — a six-year low — millions of Americans remain unemployed, and firms haven’t had to compete for talent, which would drive wages higher.
The number of people working or looking for work, called the labor force participation rate, is at its lowest point in 36 years. People who are not looking for work are not counted in the unemployment rate, leaving many unemployed people out of the picture.
Employers have added more than 2 million jobs during the past year and recaptured all of the jobs lost during the recession, a milestone that was surpassed in May. But with 15.3 million more Americans of working age, a lot of that growth has merely fed the expanding demand. Gross domestic product grew at a 4.6 percent annual rate in the April to June quarter, having declined 2.1 percent during a tough winter.
Companies hold back
A recent PNC survey showed that nearly two in five small employers expect to increase salaries of workers in the next six months. But many employers still are hesitant to invest heavily in growing their business.
“It’s not just a question of the unemployment rate or GDP growth,” Price said. “When a manager at a steel plant or an auto factory … looks out and they get a forecast, as long as they expect the economy is not going to be performing well, they’re holding back investments.”
Health and education-related employers have added about 400,000 workers to their payrolls during the past year, and yet hourly earnings have risen less than 1 percent, according to Labor Department figures.
Cuts to the Medicare program have forced hospitals to operate on thin margins of 2 percent to 3 percent and suppressed pay increases for workers, said Denis Lukes, vice president and chief financial officer for the Hospital Council of Western Pennsylvania.
“The hospitals are just able to provide a level of annual increase, but it’s going to be a low level,” Lukes said.
UPMC, the region’s largest health care system, has given annual increases ranging from 3.1 percent to 4.3 percent during the past four years, according to John Galley, UPMC’s vice president of human resources. Pay raises are tied to performance, he said, noting that “our strongest performers receive the highest merit increases.”
Not every employee has had their pay increase that much.
Roberta Galvin has worked at UPMC for nine years. She started at $10.07 per hour and now earns $12.40. She is expecting a pay bump of 18 cents, a 1.5 percent increase. But the money has yet to appear in her paycheck, she said.
“I joined the gym, which costs $40 per month,” she said. “I thought I was going to have that money in my paycheck so that I could pay it.”
The Affordable Care Act might be causing employers to hold back spending, said Frank Gamrat, an economist at the Allegheny Institute for Public Policy, a think tank in Castle Shannon.
The Obama administration has pushed back the mandate for employers to offer coverage until next year, and there are questions about what is required.
“There is trepidation of employers to do much because they’re waiting for the other shoe to drop,” Gamrat said. “The Affordable Care Act is one of the things hanging over employers’ heads.”
The dependence on part-time workers has also been blamed for keeping wages low. The Chicago Federal Reserve estimates that pay would be rising as much as 1 percentage point faster if labor market conditions, including the proportion of part-time workers who would rather be full-time, lowered to pre-recession levels.
Talerico said he would like a full-time job. But employers everywhere, including colleges, have relied increasingly on part-time workers to reduce costs.
“The university does face tremendous financial pressures, like most colleges and universities, including an obligation to remain affordable for our students and their families,” said Robert Morris spokesman Jonathan Potts.
At least 80 percent of part-time RMU faculty received a pay increases since last fall, he said, and full-time employees have received raises every year.
Talerico believes he and his colleagues deserve more but don’t have the leverage to demand it.
“I think because the universities have been able to get away with it, they’ve just been able to (suppress wages),” he said. “The attitude is you don’t like it, there’s lots of people behind you to choose from.”
Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or [email protected].