‘Lots of wage growth’ seen in low-wage work: economist

Thomas Hum
Fri., December 10, 2021

New jobless claims hit a new low not seen since 1969 last week totaling 184,000, suggesting that employers are looking to retain their workers amid the tight labor market. Amid this labor crunch, Macropolicy Perspectives Founder and President Julia Coronado believes the demand seen in the market may be causing wage growth for low-wage workers.

“So you've got Amazon (AMZN) competing with leisure and hospitality and retail, all for the same pool of workers, which, by the way, is a shrinking pool of workers, both because of more people getting higher education and because of reduced immigration. And new immigrants are more highly educated,” Coronado told Yahoo Finance Live. “This kind of pool of low-wage workers is actually shrinking — has been for years even before the pandemic. So now we've added on this intense demand surge, and we're seeing lots of wage growth there.”

However, Coronado said that the market remains strong, with workers rather than employers setting the tone for the recovery going forward.

“Elsewhere, the dynamics look very healthy — still a strong job market, still more of a worker's market than before the pandemic,” she added.

Coronado joined Yahoo Finance Live to discuss factors contributing to the labor market recovery, highlighting competition between industries and demands for wage growth. Macropolicy Perspectives LLC is an economic research firm headquartered in New York City that provides perspectives on the U.S. and global economy to support decision makers in financial services and other industries.

Brookings defines “low wages” as two-thirds of the median hourly wage for full-time, full-year male workers, which equated to $16.67 per hour in 2018. This metric is then adjusted to account for variation in local cost of living for different areas of the country.

Indeed, the lowest-paid workers saw around an 8% increase in earnings according to Arindrajit Dube, an economist at the University of Massachusetts Amherst. And while 5.5% of this gain was negated by inflation, after adjusting for occupation and worker demographics, Dube found that those at the bottom third of the pay scale saw their earnings rise on average, while earnings have gone down for the top 70%.

According to Coronado, labor share of GDP has indicated that wage growth has been strong as of late, suggesting that workers are reaping the benefits of the labor demand surge. However, in regard to whether this may lead to a wage-price spiral, she believes it is still too early to tell.

In any case, Coronado expects pandemic conditions to continue to place a drag on the labor market.

“The pandemic has also [acted as] a headwind, a constraint on labor force participation,” Coronado said. “And we saw some good news on that front last month, but now we have omicron. So, you know, some people are just still on the sidelines, trying to navigate what that means for their families. And so there's just still a lot of friction and churn associated with this recovery.”

Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter @thomashumTV