One of the harshest realities of America's slow economic recovery -- and there are many -- is the fact in spite of modest job growth, pay for workers is falling. Year over year, average inflation adjusted wages have dropped by 0.6 percent for all private sector employees. They're down a full 1 percent for non-supervisors -- your retail salespeople, your shop floor factory workers, your cashiers. In other words, even as the overall employment picture has improved in fits and starts, the working poor are getting poorer.
Some believe this is a sign of the recovery's weakness, and today the National Employment Law Project used it as a rallying point to call for a higher minimum wage. According to their analysis, which is current through the beginning of 2011, while the bulk of job losses during the recession affected medium wage earners, such as paralegals and nurses, most of the hiring post-recession has been for low-paid service work. Middle class jobs, they argue, have been replaced with poverty wage jobs.
I read the situation we're in a bit differently, but not much more optimistically. As I've written before, part of the reason real wages are dropping now is that, counterintuitively, they rose during recession, as shown in the graph below from the Bureau of Labor Statistics, which tracks hourly earnings of all private sector, non-supervisory employees. Note the sudden spike that began in late 2008, as the financial world melted down. Pay had been stagnating for years. Why did it shoot up when the economy went haywire? As NELP's own findings show, it's not because companies handed pink slips to a disproportionate number of poorly paid workers. Quite the opposite. Instead, it appears that many of those who were lucky enough to keep their jobs received small pay hikes (yes, econo-nerds, I am talking about nominal wages), despite the fact that inflation plunged into negative territory. That combination gave a significant bump to inflation-adjusted wages at a time when employers could least afford it.