Along with Lack of Jobs, A Wage Problem

The economy needs more jobs for wages to increase in a meaningful way

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Net job change chart for July 2011

It's not just the paucity of jobs that's hurting Americans, it's also the wages workers are paid for the jobs that do exist. For the average worker, earnings adjusted for inflation have decreased over the last few decades. And while the July jobs report shows some improvement, the Labor Department reported Friday, the economy has a long way to go before workers can command higher salaries.

The unemployment rate inched down to 9.1 percent in July, with 117,000 jobs created—more than expected but still far fewer than necessary to fuel a robust recovery. Meanwhile, average hourly earnings for all employees on private nonfarm payrolls increased by 10 cents to $23.13, bringing the increase in average hourly earnings over the last year to 2.3 percent. But that figure is not adjusted for inflation. For job seekers, it will continue to be difficult to earn higher salaries until there are more jobs to go around.

"We want higher wages for people who are working, but the most important problem is the high level of unemployment," says Michael Greenstone, professor of economics at MIT and director of the The Hamilton Project at The Brookings Institution, a non-partisan think tank. "Once more people become employed, labor markets will become tighter, and wages will increase."

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Median wages for two-parent families have increased 23 percent since 1975, according to a study by The Hamilton Project co-authored by Greenstone. But the increase is nearly entirely due to women working more hours outside the home. Men's earnings have been on the decline, not just throughout the recession but during the last 40 years, a trend authors of the report attribute to stagnant wages, declining employment, and a lack of growth in college attainment for men. The median earnings of men have declined by 28 percent between 1969 and 2009, the Project reports.

July's job growth stemmed from health care, which grew by 31,000; retail, which added 26,000 jobs; and manufacturing, mainly in durable goods, which grew by 24,000. Professional and technical services added 18,000 jobs, and mining rose by 9,000.

Overall, private employment rose by 154,000. But government employment continued to trend down, cutting into the overall growth with a loss of 37,000 jobs.

While an increase of 117,000 jobs is better than expected, it's still far below the 350,000 or so jobs economists say we need to add each month over the next three years to bring unemployment down to around 6 percent.

"Given that expectations had fallen so low, even a snail could've jumped over the expectations," says Patrick O'Keefe, director of economic research at accounting firm J.H. Cohn and former deputy assistant secretary in the U.S. Department of Labor.

Job-growth revisions for the last two months were positive. Total employment for May was revised to 53,000 from 25,000, and June's increase was revised to 46,000 from 18,000, the Labor Department reported.

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Another recent study, this one by the National Employment Law Project, found that low-paying jobs have dominated employment growth during the recovery, while jobs that pay more have been added at a far slower pace. The organization calls this the "good jobs deficit."

"Workers in the labor market right now are getting hit twice," says Annette Bernhardt, policy co-director at the National Employment Law Project. "They're looking at largely low-wage jobs in terms of what's out there, and they're looking at jobs that have seen stagnant and even declining wages."

But we can't blame the loss of mid-wage jobs on the recession; those positions have been disappearing since long before the economic downturn. Between the first quarter of 2001 and that same quarter in 2008, mid-wage occupations accounted for just 6.2 percent of net employment growth, the Project reports. The rest came from lower- and higher-wage occupations.

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