United States

Wages Are Finally Going Up and That's Going to Have to Continue to Get People Back to Work

Lucy Nicholson | Reuters
  • Economists have been wringing their hands over the continued difficulty in getting people back to work.
  • One commonly cited factor keeping some workers idled is generous unemployment benefits combined with wages that are too low.
  • Average hourly earnings rose 3.6% in June, above the trend before the pandemic.
  • Surveys indicate that pay increases and other benefits are essenital tools to lure workers back in.

American workers collectively saw a nice bump in their paychecks for June that may have to keep coming if conditions ever are going to get back to where they were before the pandemic hit.

If there was one dark cloud over the month's otherwise robust round of hiring, it was the tick higher in the unemployment rate and the stagnation of the U.S. labor force.

Even as nonfarm payroll hires swelled by 850,000, the unemployment rate edged up to 5.9%. That was largely because the labor force participation rate, a key factor in devising the headline unemployment number, was unchanged at 61.6%. The overall labor force, a measure of those working or looking for work, increased by just 151,000 and the total employment level contracted by 18,000.

It all added up to more than 7.1 million fewer people holding jobs in June than in February 2020, the last month before the Covid-19 pandemic declaration.

At the same time, average hourly earnings rose 0.3% month over month and 3.6% year over year, both about in line with Wall Street expectations.

Economists have been wringing their hands over the continued difficulty in getting people back to work. The most commonly cited reasons are continued fears of the virus, child care issues, skills mismatches, and the allure of enhanced unemployment benefits compared to the salaries companies are offering.

It's the salary and benefits issue, though, that has been the most bewildering, as companies wonder what it will take to entice workers off the sidelines.

"They've got to walk the walk. I think it's pay," said Fred Goff, founder and CEO of Jobcase, a social platform that advocates for workers. "If people don't walk the walk, I do think the labor market will continue to be tight."

Jobcase conducted a survey of 515 unemployed workers in May and found that almost all said they weren't making more money out of work than when they had jobs, though 34% said they are still uncomfortable going back to work.

Their biggest concerns were health worries surrounding the virus, followed by pay rates being too low. In addition to pay, Goff cites "superfluous" requirements for jobs, such as college degrees that don't apply or training that isn't needed.

And he faults corporate CEOs who place more importance on returning money to shareholders than paying workers.

"All we're saying is what was acknowledged before the crisis, that we have too much emphasis on shareholder value and not enough on worker value," Goff said.

Less urgency in getting back to work

The pay issue, at least, jibes with what executives at job search site Indeed are finding with their clients, who cite health as the biggest reason for their hesitancy to go back, according to Nick Bunker, the site's economic research director. The financial cushion accumulated during the pandemic also was a factor for some.

"There were, of course, people who were saying unemployment insurance payments were making their job search less urgent, but it wasn't in their top-tier responses," Bunker said. "You have seen signs that wage growth is picking up. The question is for some occupations and jobs, especially during the pandemic, do we need to see continued pickup in those wages to really get hiring going."

Employers have been responding to the demands for greater incentives.

Some 4.1% of companies posting on Indeed in June were offering hiring incentives, more than double the rate of a year ago. Driving-related occupations as well as personal care and home health were the leading industries in offering incentives, with cash bonuses ranging from $100 to $30,000. Food prep jobs offered bonuses of $100 to $2,500.

In the aggregate, wage growth has been difficult to measure during the pandemic because lower-earning workers were some of the last to return to their jobs. That skewed the total average hourly earnings numbers higher for much of 2020, with a peak of 8.2% year-over-year growth in April 2020 that was hardly indicative of the overall labor market.

However, leisure and hospitality provides an interesting snapshot for what is happening in terms of pay.

The sector currently has an unemployment rate of 10.9%, compared to 5.7% prior to the pandemic, so there's obviously still a lot of slack there. But hiring has picked up rapidly in recent months, and so have wages.

Octavio Jones | Reuters
A Dunkin' restaurant displays a "Now Hiring" sign in Tampa, Florida, June 1, 2021.

Leisure and hospitality payrolls have increased by 1.6 million since the beginning of the year, and average hourly earnings are up 5.7%. Wages have risen more than 10% since the start of the pandemic.

While there's still plenty of ground to cover, the industry, which includes the hardest-hit businesses during the pandemic such as bars, restaurants and hotels, is coming back as pay is increasing.

Companies will be tasked with keeping the momentum going.

Projections from Indeed show that through June 18, there were about 9.8 million job openings in the U.S. Labor Department data released Friday shows that there are just shy of 9.5 million workers considered unemployed.

With the total jobs now outnumbering the eligible workers, that could signal a tipping point for the jobs market.

Separate data from Indeed shows that the amount of job postings on the site deemed "urgent" for hiring jumped to 2.3% in June from 1.6% in January, another sign that companies are getting desperate for hires.

At the industry level, demand is widespread but especially acute over the past four weeks in human resources, with postings up 12.4% during the period in another sign that companies are getting operations back to normal and need help managing the workforce.

"Right now, the job market is relatively tight, or a lot tighter than you would expect given the fact that we're still down about 10 million jobs from where the labor market would have been absent the pandemic," Bunker said. "That's a result of extraordinarily high demand now as employers want to seize on near-term opportunities. At the same time, a large chunk of the workforce is a little hesitant, a little more patient. They don't feel the same sense of urgency."

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