Rise of low-wage economy dampens economic recovery

Wall Street seemed satisfied with last Friday’s job report. According to the Department of Labor, the US economy added 175,000 new jobs, about 17,000 more than Wall Street had predicted, and market prices rose after the unexpected news was announced.

Most economists while not overly impressed with the monthly job growth figures seemed to think that it was a sign of slow but steady improvement in the economy . “The May report was decent but not fabulous,” said Jennifer Lee, senior economist with BMO Capital Markets to CNN.

But the fact is that most new jobs created during May were in low-paying occupations, continuing a trend that began with the recovery from the Great Recession, and as low-wage work expands the chances of a robust economic recovery decline.

 “Low wages affect (low-wage) workers,” said Christine Owens, executive director of the National Employment Law Project. “But they affect the rest of us too. In an economy still driven largely by consumer demand and consumption, if jobs don’t pay enough for working families to afford the basics, workers can’t spend enough to drive a faster pace of economic growth. But when low-wage workers get a raise, we all benefit.

Bloomberg reports that the bulk of the new jobs created in May were in occupations whose median wage is well below the US median hourly wage of $23.89.

According to the Labor Department, 97,200 of May’s new jobs were in low paying occupations. The hospitality industry (hotels, restaurants, etc), whose median wage is $13.45 added 43,000 new jobs. The hospitality median wage is the lowest of any of the ten major employment categories.

Retail, whose median wage is $16.63, added 27,700 jobs, and temporary help, whose median wage is $15.74, added 26,500.

Other low-wage sectors such as ambulatory and home health care services added jobs while the manufacturing sector lost about 8,000 jobs.

The May numbers are part of an ongoing trend.

A study by the National Employment Law Project found that since the recovery to the Great Recession began, 58 percent of the job growth has taken place in low-wage occupations.

Even more troubling is the fact while 60 percent of the job losses during the Great Recession were in mid-wage occupations, only 22 percent of the new jobs created are in mid-wage occupations.

The Bureau of Labor Statistics reports that half the workers who found new jobs between 2009 and 2011 after losing a job at which they worked three years or more made less money in their new job. About one-third took jobs that paid at least 20 percent less than their previous job.

Add to this the 7.9 million workers who are working part-time but would prefer to work full-time, and it becomes clear that for many workers, the Great Recession hasn’t come to an end.

With so many workers working for wages that can barely pay for the essentials, it’s no wonder that unemployment, which ticked up slightly in May to 7.6 percent, remains high. Low wages mean that many potential consumers can’t afford purchases, which in turn has lowered demand.

“The jobs crisis stems from a broad-based lack of demand,” writes Heidi Shierholz of the Economic Policy Institute. “In particular, unemployment is not high because workers lack adequate education or skills; rather, a lack of demand for goods and services makes it unnecessary for employers to significantly ramp up hiring.”

The conventional wisdom is that low wages promote hiring and job growth, but that’s not happening now. In fact, the rise of the low-wage economy seems to be stifling a strong economic rebound.


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