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Official Statistics Show Wage Growth, But That’s Due to Low-Wage Job Losses

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A study by the Federal Reserve Bank of San Francisco says the recent spike in wage growth is an „illusion.“
The spike in wage growth amid the coronavirus pandemic is an “illusion” driven by disproportionate job losses amid low-wage workers, according to a study by the Federal Reserve Bank of San Francisco. Earnings have steadily risen amid the pandemic despite, or rather because of, an economic crisis that has led to tens of millions of job losses and business closings. But the increase is a “false signal” that is “almost entirely attributable to job losses among low-wage workers,” Mary Daly, the head of the San Francisco Fed, and her team said in an letter on Monday. Data shows that the average weekly earnings for full-time employees has grown by 10.4% over between spring of 2019 and spring of 2020, the fastest rate in nearly 40 years. Wages have grown 6.4% faster over that stretch than during the final three months of 2019. “The median usual weekly earnings measure that we focus on here is not an exception. Other measures of wage growth — like average hourly earnings and compensation per hour — show similar spikes,” Daly said, but in this case the growth “primarily reflects the departure of low-wage workers who have been laid off due to coronavirus… and are no longer counted in the aggregate wage series.” Low-wage workers have been disproportionately affected by pandemic job losses. The number of full-time job losses since March are nearly twice as high as the number during the Great Recession, according to the study, with 17% of the full-time labor force losing their jobs since the pandemic began. Roughly half of these workers are not classified as unemployed because they are not actively searching for a new job. Workers in the bottom 25% of earners made up about half of the job losses, the researchers found, while the top half of earners accounted for about a third of the layoffs. Looking at the earnings of workers that have been continuously employed throughout the pandemic, the economists found that the 10.4% wage growth rate is nearly 8% higher than the growth rate for employees who have kept their jobs. Wage growth among continuously employed workers has slowed by 2.4% since the end of 2019. “Therefore, the recent spike in aggregate nominal wage growth does not reflect the benefits of pay raises and a strong labor market for workers,” Daly and her team said. “Instead, it is the result of the high levels of job loss among low-income workers since the start of the pandemic.” These job losses, they said, “have distorted measures of aggregate wage growth,” which means the measure “should not be seen as indicative of a recovering labor market.

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