Stock markets and corporate profits are breaking records. The economy suddenly looks brighter after the government's surprising report Friday that employers added 635,000 jobs the past three months.
Iinstead of celebrating, however, many working Americans are borrowing a line
from the 1996 movie Jerry Maguire: "Show me the money."
Hourly wages ticked up 4 cents in April to an average $23.87, rising at about
the same tepid 2% annual pace since the recovery began in mid-2009.
Taking inflation into account, they're virtually flat. Workers who rely on
paychecks for their income have been running in place, financially speaking.
Adjusting for inflation, an average worker who was paid $49,650 at the end of
2009 is making about $545 less now -- and that's before taxes and deductions.
Stagnant wages aren't only tough on workers -- the American economy is paying a
price, too. Living standards aren't rising. Consumer spending, which is 70% of
the economy, is more restrained. And the recovery advances at a slower pace.
"Ultimately, for the economy to thrive, we need everyone participating," says
Mark Zandi, chief economist of Moody's Analytics.
The profits of Standard & Poor's 500 companies hit a record in the first
quarter. Their healthy earnings have boosted stocks, and April's encouraging
jobs report sent the stock market even higher Friday. The Dow Jones industrial
average crossed 15,000 for the first time and closed at a record 14,973.96, up
142.38 points.
The roaring market is making the richest Americans richer and giving them more
money to spend. But in 2010, only 31% of U.S. households had stock holdings of
$10,000 or more, according to the Economic Policy Institute (EPI). During the
first two years of the recovery, average net worth rose for the top 7% of
households but fell for the other 93%, the Pew Research Center says.
Meanwhile, Corporate America isn't sharing its record earnings with employees.
"Don't hold your breath" for employers to become more generous, says John
Lonski, chief economist for Moody's Investors Service. One reason, he says, is
that revenue growth has been meager, up between 0.5% and 1% in the past year.
In fact, higher profits owe partially to employers' success in controlling labor
expenses, by getting workers to be more productive, holding down raises and
hiring conservatively.
Productivity, or output per labor hour, has risen an average 1.5% a year since
the recovery began. Companies are squeezing more out of each worker even as
inflation-adjusted wages have stagnated.
Another reason for stagnant wages is the law of supply and demand. Sure, the job
market has picked up: Employers added 165,000 jobs last month and an average
196,000 a month this year, up from 183,000 in 2012. And the jobless rate has
fallen from a peak of 10% in 2009.
Few incentives to boost pay
Yet today's 7.5% unemployment rate is still high. Nearly 12 million Americans
are unemployed, and millions more want to work but are so discouraged they've
stopped looking. With an abundant supply of potential workers, employers have
little reason to shell out big raises.
"High unemployment hurts workers' bargaining power," EPI economist Heidi
Shierholz says. "Employers know they can go get someone else."
So many Americans are out of work that employers could get away with giving no
raises at all, Zandi says, leaving household income falling behind inflation.
But employers realize that would hurt morale and, in turn, productivity, he
says.
Still, wage increases that just barely keep up with inflation don't make for a
prosperous economy. "We're not seeing the living standard growth of American
workers that we should be seeing," Shierholz says.
Stagnant wages also hurt consumer spending. Low- and moderate-income workers
typically spend nearly all their paychecks, juicing the economy, while
high-income workers tend to save a portion, says Dean Baker, co-director of the
Center for Economic and Policy Research.
Larry Breech, of Milville, Pa., a retired farmer who makes about $10,000 a year,
says his per diem pay for substitute teaching hasn't changed in several years.
"We will be frugal," he says. "Fiscal restraint is imperative."
Consumer spending, which has been growing at an average annual rate of about 2%
during the recovery, would be rising by 2.5% if employers simply passed their
productivity gains onto their workers, Zandi says.
Some workers are getting bigger raises. While the lowest 10% of income earners
got average raises of 0.3% last year, those in the top 25% saw their pay jump
3.1%, say the Bureau of Labor Statistics and Moody's Analytics. Workers with
higher skills and more education in booming industries, such as energy and
technology, can command higher salaries.
Stephen Allen, an oil industry contractor in St. Louis, says his wages have
increased by more than 60% the past three years. He makes about $85,000 a year.
For now, it's up to Americans like Allen and those with large stock holdings to
generate a bigger share of spending and economic activity. The top 20% of
households based on income account for nearly half of consumer spending,
according to Barclays Capital.
Good news for households
A bright spot is that despite puny wage increases, other barometers of household
finances show improvement. The housing market is continuing a solid recovery.
Climbing home and stock prices have helped households overall recover the wealth
they lost in the recession and housing crash.
And the share of income Americans are using to pay off debt has fallen to 10.4%,
the lowest level since the government began tracking the data in 1980, reports
the Federal Reserve. Meanwhile, falling gas prices are putting more cash in
consumers' pockets. Such developments can partly offset sluggish wage growth and
pave the way for higher spending.
After working off debt the past three years, Allen says he expects to be
debt-free this summer "and then save for a down payment on a house."
Still, economists say consumer spending won't take off in earnest until
inflation-adjusted wages return to a normal growth rate of about 1.5% a year.
Baker says that likely won't happen until unemployment falls below 6%, probably
in 2016.
Then, employers will begin to worry about not finding enough workers.
"They'll start to hire more aggressively," pushing up wages faster, Zandi says.
