Kathy Deck: Despite Employment Gains, It’s Still Hurry Up and Wait

Editor’s note: Kathy Deck, the author of this guest commentary, is an economist with the University of Arkansas’ Walton College of Business Center for Business & Economic Research. This article appeared in the latest magazine edition of Talk Business & Politics.

As the Arkansas and United States economies hum along, enjoying month after month of employment gains, a sense of unease about this expansion remains firmly planted in the public mind.

In the U.S., more than 14.6 million jobs have been created since the bottom of the Great Recession in January 2010, 80,600 of those jobs in Arkansas. Those paces of job creation are respectable when viewed in any historical context and are more than respectable when the duration of the expansion (more than five years) is considered. But, even though employment has grown so well, the stagnation in average income growth has left many people feeling like the economic expansion is a lie.

LOW GROWTH RATES
In the nation, average hourly earnings at private businesses have grown only 1.9% annually since January 2010 and in Arkansas average hourly earnings have only increased 1.1% annually. Growth in average personal disposable income (adjusted for inflation) has been 1.5% per year.

These low growth rates in income correspond to a time period where inflation has been quite modest, growing at only 1.7% per year since 2010. All of these “one-point-something” growth rates tell the story of an economy where pricing pressures are constrained. Workers have not been able to argue successfully for higher pay and businesses have not been able to ramp up the prices of their products, by and large.

There are signals that this stranglehold on wages is under strain. A number of large companies, including Arkansas’ own Walmart, have announced that they will increase the hourly wage rates of their lowest paid employees over the next couple of years. The National Federation of Independent Business, a small business advocacy group, reported the highest level of increased labor compensation among its membership since January 2008.

Various states (including Arkansas) and municipalities have passed legislation to increase the minimum wage, in the hope that these extra dollars will help make ends meet for those workers. In many places, health-care costs are growing more slowly than in the recent past, which opens the door for employers to reward their workers with raises rather than with increased contributions to health insurance premiums.

The most recent data on job openings showed that the country has more than 5.3 million available and the quits rate (an indicator of worker confidence) was at nearly pre-recession levels at 1.9%. If workers feel like better wages are available at their next employer, then there will be economy-wide upward pressure on pay. But, these would-be newly hired workers have to prove their value to the firm.

PRODUCTIVITY DOWN
Employers in both the state and nation continue to report that the available workforce is missing the skills that they are looking for. Another disconcerting sign is that worker productivity, as measured by output per hour, has fallen during three of the last five quarters and the growth rate has been trending down during the recovery period.

On a monthly basis, economists in Arkansas and the rest of the country are right to note the strong job growth that this recovery has provided. There will be even more reason to celebrate when solid income gains accompany that employment picture. As ever, the data provide some hope that those wage increases are imminent and also some caution that the wait is not over yet.