Yesterday was Labor Day so between enjoying some bar-b-cued meats and cold beverages on that day off I was looking a little closer at what has been happening in the Job Market lately and what it means for Income Inequality…
A recent New York Times article had the disturbing headline: “Low-Income Workers See Biggest Drop In Paychecks“. The article went on to discuss the plight of workers in the home health care, food preparation and retailing sectors. One example shows how a guy who worked at a KFC in the Mid-1990s earned an equivalent in today’s dollars of $8.61 then went away for two years of college and two military tours in Iraq. He came back and now earns $7.25 and hour.
This really seems crazy when you consider the recent U.S. Government employment report that tells us 173,000 new workers were hired in August and the unemployment rate is down to 5.1%. It has not been this low since April 2008.
So with what appears to be an extremely tight labor market, low-wage workers are seeing a drop in real wages. It should be the other way… Wages should be going up! If you look at the basic economics of the situation you would think that as fewer workers are available employers would need to raise wages to fill job vacancies.
If we assume the Labor Department has not botched the data there could be two forces at work here below the surface that smart people seem to forget…
1. Pay is more than just the cash you get in an envelope at the end of the week.
The recent New York Times articles on how pay has gone down for low-wage workers focuses on the actual cash people take home. But a huge change has happened over the last few years. That change comes under the umbrella of Obamacare. In most cases the huge costs of providing healthcare has added significantly to the cost of hiring workers. And this cost is reflected in lower wage increases. And… Workers should be spending less of their pay on health costs. At least that’s was the promise made when Obamacare was pushed through congress and into the laps of the American people. Yes wages are relatively lower but healthcare cost for employees should be lower too.
This just may be the bigger factor influencing low-wage worker take home pay.
The world is changing… It has been for years.
Fast food workers are in direct conflict with people who are striving for healthier eating habits and may be eating at home more. Or just up-scaling their restaurant meals to places with fresher choices, better menus, and fewer employees.
Home Healthcare workers are being squeezed because with better healthcare coverage people might go to the hospital or other higher end choices for healthcare. Maybe they are able use better health care to stay healthier and not need as much home healthcare services.
Retail workers are cruising stores with fewer shoppers since more and more people are shopping online. Online shopping is easier, takes less time, usually has what you need, and costs less.
These three worker categories are not in as much demand in a changing world. To push for higher wages when jobs that are falling out of favor will only result in fewer (if any) workers making more money while higher consumer costs push the few last consumers to other lower cost/higher quality alternatives or totally out of the market.
In the past when the world changed did people worry about the declining opportunities and pay for blacksmiths and buggy whip workers? Did front page articles document the plight of lantern wick weavers as electric lights started to spread? Did the government push for higher minimum wages for ice delivery men as electric refrigerators started popping up in homes?
I don’t think the plight of these past job holders received much ink in the New York Times.
Workers in these low wage areas today are paid what the market will bear. That is a directly decided by the demand for their services/skills combined with the number of potential people to fill those positions.
Right now in an environment we have now low-wage workers need to up-skill to get higher paid positions in areas with higher demand.
The same way blacksmiths ran out of horses to shoe and became car mechanics, lantern wick weavers became electricians, and ice delivery men decided to sell and serviced refrigerators low-income workers in low demand areas need to find their next job based
on where the world is going. The wrong way to increase their wages is to cling to jobs in low demand with low-wages.