Low-Income Earners See Weekly Pay Gain Faster Than Other Groups

For the first time in years, pay for lowest-income Americans is rising faster than for other groups.

Weekly pay for earners at the lowest 10th percentile of the wage scale rose at a faster rate last quarter, from a year earlier, than any other group measured by the Labor Department -- including those at the top of the income scales who earn five times as much.

The shift for low-income workers -- including restaurant workers and retail cashiers -- who make about $10.75 an hour, is a sign that a tightening labor market is delivering better pay to workers who largely haven't shared in gains since the recession ended eight years ago, according to economists and government data. Last quarter marked the first time since late 2010 that this earning group's gains outpaced all others.

Usual weekly earnings for workers ages 25 and older at the bottom of the pay scale rose 3.4% from a year earlier in the second quarter, according to analysis of newly released Labor Department data. That was stronger than median gain of 3.2% and the 3.1% improvement for workers at the 90th percentile, who earn more than nine in 10 other Americans. The percentage increases are based on a four-quarter average of earnings, to smooth out volatility in the data.

Throughout much of the economic expansion that began in mid-2009, wage gains for the lowest-earning Americans trailed behind median wage gains and those of the highest earners. During 2015, top wage earners received about a 4% annual increase, while the annual raise for those in the bottom 10th percentile was near 1%.

The recent improvement for low earners coincides with a downward trend in the unemployment rate, which stood at 4.4% last month, versus 4.9% a year earlier. The unemployment rate for those with less than a high-school education -- who make up much of the low-wage workforce -- fell even more sharply, to 6.4% last month from 7.5% a year earlier. Tighter labor supply in theory should push up wages.

Usual weekly earnings is a different wage measure than the more broadly cited average hourly earnings figure reported in the jobs report each month. The jobs report showed average hourly earnings for hospitality workers, the lowest paid of 19 broad sectors tracked monthly, rose 4% in June from a year earlier, the second-strongest gain. The quarterly numbers, which tend to be volatile, are based on a survey of workers and include overtime pay, commissions and tips that might not be captured in the hourly figure.

Average hourly earnings, which have been stuck near a 2.5% annual increase for most of the past year and a half, are based on a separate survey of private-sector employers.

Wages have been rising swiftly in fields such as restaurants, amusements and gambling, said Jed Kolko, economist at job-search site Indeed. That is an indication that employers need to pay more to attract workers into those fields.

"In a strengthened economy, people spend more on entertainment and eating out, raising demand for workers in those fields," he said.

Those wage gains also at least partially reflect rising minimum wages in many states and cities. At the start of the year, the minimum wage increased in 19 states, and Maryland and Oregon raised their pay floors this month.

Still, higher-earning Americans have fared much better during the expansion. Pay for workers in the 90th percentile has increased nearly 20% since mid-2009, better than the median gain of 16.3%. The 10th percentile worker fared worse, with pay improving 12.5%. That hasn't been enough to offset inflation during the past eight years.

"We're starting to see wage pressure at the two ends -- the high-skilled end and the low-skilled end," Philadelphia Federal Reserve President Patrick Harker said in an interview this month. "Where the squeeze is still happening is the middle-skill jobs."

He said that could partially reflect new technologies emerging to supplant better-paid workers. For example, he said, sophisticated document-reading software is reducing law firms' need for armies of young associates to do the task.

Since the recession ended, employment in legal services rose less than 1%. Employment at restaurants and bars is up 24%.

Last year, the Wireless Zone, a chain of cellphone stores, raised base pay for workers at its company-owed locations to around $18 an hour, but cut back the bonus incentives it offered. As a result, the lowest-paid workers earn more, shrinking the gap between high and low earners. Average pay is little changed, said Dave Staszewski, executive vice president of the Rocky Hill, Conn.-based franchise. He said the change in pay structure was designed to attract scarce workers.

He said the strategy has been effective in attracting workers as these job seekers put a bigger emphasis on guaranteed salary rather than potential bonuses.

However, some low-paid workers say the raises are still too small to make a difference. LaShawnda Obie, a Wendy's worker from Detroit, received a 40-cent increase to $8.90 an hour in January, when Michigan's minimum wage increased. That is a 4.7% raise -- but she said it isn't enough to support herself and two daughters.

"I still have to sacrifice," the 28-year-old said. "My kids need underwear and clothes, but I have to push that aside so I can pay rent."

Write to Eric Morath at eric.morath@wsj.com

(END) Dow Jones Newswires

July 20, 2017 05:44 ET (09:44 GMT)