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Money tips: Wages have in effect fallen since the economic recovery

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Have you found it difficult to recover fully from the effects of the Great Recession? A new study from the National Employment Law Project (NELP) may have some insight into why. Even though by most measures the economy has been improving, wages have remained relatively stagnant. When inflation is taken into account, wages have effectively fallen since the beginning of the economic recovery in 2009.

NELP compared median wages for different occupations using data from the Occupational Employment Statistics (OES) database for 2009 and 2014. Data was divided into quintiles by the occupation's median wage and broken down further to see where the effects of falling real wages had the most impact.

When averaged across all occupations, real median wages dropped by 4% from 2009 to 2014. The declines are also greater with lower wage occupations. Looking at these declines by quintile, the bottom 20% of occupations ($8.84-$10.97/hr.) saw their real median wages decline by 5.7%, while the declines for the two highest-wage quintiles were 2.6% and 3.0% respectively.

That finding is not too surprising — inflation is a constant percentage regardless of how much you make, but most raises and wage increases are based on percentages of your current salary.

These declines produce real consequences for workers in the lowest wage occupations such as restaurant cooks, janitors/cleaners, and food preparation workers. For example, the restaurant cook who experienced a real 8.9% wage decline now has approximately $2,185 less in purchasing power than he or she did in 2009.

When compared with expected occupational job growth information from the Bureau of Labor Statistics (BLS), the wage situation takes on another layer of urgency. Real median wages sank by 5% or more in six of the ten occupations that are expected to have the greatest job growth by 2022, including retail sales, food preparation workers, and personal care and home health aides. Five of the ten occupations are in the lowest quintile of median wages.

Therefore, the majority of projected job growth is either in occupations with low median wages, falling real median wages, or both. That is a grim prognosis when consumer spending drives over two-thirds of the economy with respect to GDP. Who will have money to spend on discretionary items?

NELP took a closer look within each of the five quintiles and compared the changes in the 10th and 90th percentile within each of the quintiles to see if the use of the median as an average was obscuring any steep declines. Compared to an arithmetic average, a median value means there is the same number of data points above and below that number. It could be that within a quintile, the low end is suffering a larger wage decline than the upper end.

For most quintiles, the 10th percentile suffered greater wage declines than the 90th percentile, a 2.1% difference in the upper two quintiles and 2.8% in the middle quintile. The exception was in the lowest quintile where the 90th percentile dropped 4.9% and the 10th percentile dropped 1.6%. Recent increases in minimum wages are a likely cause. At the low end of the lowest wage quintile, wages can only drop so far.

For further information on wage declines and notes on methodology, the complete NELP report may be accessed here.

NELP has done an excellent job of highlighting the difficulties created by real wage declines, especially relating to lower-wage occupations, but what can we do about it? Expect this to be a topic during the upcoming election year.


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