Wages are about to jump faster than ever in history — for all the wrong reasons

May 07, 2020

Editor's Note: Dan Alpert is on CPA's advisory board and a principal researcher to the Job Quality Index.

Average hourly wages will likely jump between 4% and 6%, cumulatively, from March through May of this year. How can this be? Because we have just eliminated tens of millions of low-wage/low hour jobs and the mix of jobs has reversed in favor of better paying positions — for all the wrong reasons. The debate over why wages were growing so poorly since the great recession is now over – the answer is that the US was adding mostly low-wage/low-quality jobs.

[Dan Alpert | May 6, 2020 | Business Insider]

This Friday, the US Bureau of Labor Statistics will be releasing its Employment Situation Report — more commonly known as the jobs report — for the month of April 2020.

The jobs report will allow us all to see the broader impact of the unprecedented employment depression resulting from the coronavirus crisis. The size of the job loss is certain to be devastating, but some numbers may not look so bad.: Average hourly wages, hours worked and average weekly incomes will likely jump more on a month-over-month basis than ever before in the history of the data.

Moreover, when the May jobs report is released on June 5, we will likely see March through May large increases in each of these measures for the production and nonsupervisory workers who are still employed. Average hourly earnings could increase 4% to 6% over this time period; hours worked could increase 6% to 8% ; and weekly incomes could jump as much as 10% to 15% .

This will not be because workers remaining on the job have gotten raises, are working longer hours, or are taking home more money overall. It will be due to the near elimination of tens of millions of low-wage, low-hour jobs over the course of the US global economic lockdown. 

We saw a smattering of this phenomenon last month with the release of the BLS report for March. Average hourly wages for production and nonsupervisory workers jumped by 10 cents, or 0.42% in one month from February to March. In the same period, the US lost 713,000 private sector jobs. This was just the tip of the iceberg, as initial jobless claims showed layoffs and furloughs through April 25 totaled 30.3 million since the crisis began.

We are experiencing the fastest moving and largest loss of jobs in the history of employment data record keeping. The monthly BLS Employment Situation Report uses data collected each month for the payroll period in which the twelfth of the month occurs. Therefore, the March report was for the payroll week ended March 13, and the report that will be issued this coming Friday will contain data collected for the week ended April 17.

So by construction, the numbers released on jobs day will continue to lag the rapidly changing facts on the ground. We are unlikely to get a full picture of the depth and breadth of the crisis until June.

By mid-May, it is likely that we will see continuing unemployment claims begin to peak, as the nation slowly reopens the economy (which data we will not see from the Department of Labor until May 28). And, as I wrote (way back, it seems) on March 14, the mounting layoffs and furloughs have unsurprisingly disproportionately hit front-line, customer-facing production and non-supervisory jobs – most of which are low-wage, low hour positions.

Assuming that continuing claims (which were just under 18 million for the week ending April 18, the latest data available) peak at between 30 and 35 million – which seems likely – at some point we will know the actual mix of job losses as between low-paying and higher paying jobs.

But what is clear today is that the US economy has been massively dependent on increasing numbers of low quality jobs to employ its workers. And the current crisis is about to prove conclusively what the Job Quality Index (JQI), developed by my colleagues and myself in 2019, has shown about the anemic average wage growth of recent years. More specifically, that increases in overall employment were substantially offset by a surge in low-wage, low-hour jobs as a percentage of the mix.

And now we will see what happens when you wipe out over 20 million of those low quality jobs: average wages and weekly incomes will jump in an economy otherwise devastated beyond all belief.  

To estimate the impact on averages wages, hours worked and weekly incomes of production and non-supervisory jobs (until recently, 83% of the jobs out there) I opened up the JQI model and attributed loss factors, at peak, to the most severely impacted job categories chosen carefully to exclude things like grocery store and pharmacy jobs, which we know are still seeking workers.

It would be fair to argue that there are other sectors impacted by layoffs and furloughs – there most certainly are. And one can certainly debate the level of peak losses I estimated in the chart presented here. This is just one cut at very complex data. 

The upshot is that the forgoing methodology forecasts peak losses of some 27.6 million of production and non-supervisory jobs. This would be more or less consistent with overall continuing unemployment claims of about 33 million to 35 million at peak (some of which will be managerial and supervisory jobs and some self-employed workers newly qualifying for unemployment insurance under emergency programs).

The high end of the likely ranges for changes to average hourly wages, hours worked and weekly incomes, presented in the opening paragraphs of this piece, are indicative of the foregoing modeling. The lower end of the ranges is indicative of what would be the case if job losses permeated deeper into the goods producing and professional services sectors than is reflected in the data. 

So here we have the cruelest of laboratory experiments to prove the point about deteriorating job quality in America. We will see what happens when many of the sub-par jobs on which the country's employment picture has become so dependent, disappear overnight. 

And we will see in the data, to some extent, how the "other half" has been living — which is to say, much better.

You can view the Job Quality Index here.

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  • Ben Leet
    BLS shows in February 2020 some 158,759,000 were employed. In April 133,403,000. A drop of 25,356,000. (Table A-1. Employment status of the civilian noninstitutional population 16 years and over, 1985 to date)
    A Brookings report says, “An estimated 46 million Americans have already been laid off or seen a reduction in hours as a result of COVID-19, according to Gallup survey data collected from March 27 to March 31, 2020. This amounts to around 28% of workers.” 46 million is 29% of 158.76 million.
    The report: “Official jobless figures will miss the economic pain of the pandemic
    Jonathan Rothwell, Friday, April 3, 2020”
    Americans are not financially prepared for this. In September 2017 the Consumer Financial Protection Bureau published a Financial Well-Being report and asked adults "How much money do you have in savings today (in cash,checking, and savings account balances)?” This is called “Liquid savings.” (see page 81)
    less than $250 — 24%
    less than $1,000 — 35%
    less than $5,000 — 54%
    less than $20,000 — 74% American adults answered.
    Meaning the majority are not prepared for an extended loss of income.
    The Prosperity Now web page, Scorecard, found that — Nationwide 25.4% of credit card holders have reached the 75% of credit limit on their cards;
    Those who have saved for emergencies — 57.8% have saved — 42.2% have not saved
    Consumers with Debt in Collections — 21.2%
    Another poll asked about missing a paycheck, every two weeks, would it be a difficulty? The American Payroll Association reports 74% said yes; 40% said a major difficulty, and 34% said a slight difficulty. A Harris poll found that respondents say they always (23%) or usually (17%) or sometimes (38%) live paycheck to paycheck, for a total of 78%. My blog – http://benL88.blogspot.com, Economics Without Greed, Part Two
  • Jeffrey Sunnergren
    Let me tell you what is going on. Foreign imports are long run products. Example iPhones, steel, clothing, electronics. The United States has in general relied on short run, speciality products. Box stores want cheap products which are typically long run. Deteriorating job quality is caused by the fact that job costs in this country compete with jobs costs in foreign countries. Shipping costs and time delays can be mitigated when you by a million. Or course, many suppliers followed their customers to keep cost low and that is a major factor in the supply chain. None of this is a factor in JQI.