Earning

Why 'wages grew a ton between 2019 and 2020' but lots of workers still aren't getting better pay

"For now, the labor market remains pretty tight and it's a decent time for workers to go back."

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During August, a whopping 4.3 million people quit their jobs, according to data from the U.S. Department of Labor.

Some employers are responding to the exodus, known as The Great Resignation, by increasing pay, according to Monster's 2021 Hiring Report. Since September 2020, average hourly wages have increased $1.35, from $29.50 to $30.85 for all employees on private nonfarm payrolls, which includes industries like construction, education, and leisure and hospitality, according to data released by the U.S. Bureau of Labor Statistics.

However, some economists push back on the idea that wages are rising for all workers. The reason it appears like wages are increasing is because the "composition" of workers changed during the pandemic, says Elise Gould, a senior economist at the Economic Policy Institute.

The industries that have recovered the most jobs since the pandemic started are higher paying, like professional and business services and financial activities. As more and more lower paying jobs remain open, it shifts the average hourly wage higher.

So hourly pay going up is "information, but it's not necessarily telling us what individual workers are experiencing," Gould says, especially low-wage workers. "Wages grew a ton between 2019 and 2020 because, essentially, the bottom dropped out of the labor market," she says. This has been referred to as the "K-shaped recovery," or how high-income and low-income workers have experienced different financial challenges during pandemic.

In the near future, 'you might actually see wages falling'

In August, the employment rate for workers making less than $27,000 per year was still down 25.6% compared to January 2020, according to Opportunity Insights Economic Tracker. However, employment rates for those making between $27,000 and $60,000 and those making more than $60,000 were up 3.3% and 10%, respectively.

For example, hospitality and leisure took a big hit during the pandemic. Employment in this industry is still down 9.4% from February 2020, according to BLS data. In September 2021, workers in that industry earned, on average, $18.95 per hour, significantly less than $30.85, the average hourly wage of all workers.

Average hourly pay could even go down in the near future, Gould says: "As more low-wage workers come back to the labor market, as the economy opens up more and we bring back restaurant and hotel workers, then you might actually see wages falling."

Current wages often aren't adjusted for inflation, she adds: "If things are getting more expensive and wages aren't keeping up, then that's relevant."

'The labor market remains pretty tight'

While the mix of jobs in the labor market might be pulling the average hourly pay up, there is still a greater demand for workers than there is supply, says Mark Muro, senior fellow at Metropolitan Policy Program at Brookings Institute.

Some companies are even requiring corporate employees to pick up shifts in retail stores and restaurants. Raising Cane's, for example, is deploying one-third of workers, including the company's co-CEO and COO, to take shifts being cooks and cashiers onsite. Job hunters could use this to their advantage.

"I think there is upward pressure in the current economy," Muro says. "Especially because many of those returning are caught struggling with various day-care challenges and school challenges and hesitancy about face-to-face work."

If things are getting more expensive and wages aren't keeping up, then that's relevant.
Elise Gould
Senior economist at EPI

The delta variant exacerbated the problems corporations were having getting people to return to jobs for salaries that were unsatisfactory pre-pandemic, he says. While wages may begin to flatten next year, right now "pay is ticking up," he says.

If you're applying for a job in the service industry, you might not get $30 an hour, but you may well get more than you would have pre-pandemic. Chipotle Mexican Grill raised its wages to $15 per hour and Costco raised its minimum wage to $16 per hour.

"Wage pressures should ease next year, maybe early next year, but for now the labor market remains pretty tight and it's a decent time for workers to go back and find new jobs and maybe get a pay increase," he says.

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