Sunday, August 11, 2013

The U.S. Employment Boom In Low Paying Sectors

When measuring wage inflation, people usually use average hourly earnings. That indicator is relevant (together with two other indicators, namely average weekly hours and employment) when it comes to issues such as how aggregate and average income changes, but it can be misleading when trying to analyze wage inflation.

There are two sectors which really stands out when it comes to having low pay. Retail trade where average hourly earnings is just $16.58 and Leisure & Hospitality where average pay is just $13.48. Both of these sectors had employment growth above the average of 2%, with retail trade employment increasing 2.3% and Leisure & Hospitality increasing 3.4%. As a result "Leisure & Hospitality" increased its share of private sector employment from 12.3% to 12.45%.

Meanwhile, the three sectors where average hourly pay was above $30, Utilities, Information and Financial Services, all increased slower than average, 1.3%, 0.6% and 1.5% respectively. While this is partly offsett by the fact that the fourth highest paying sector, Mining, had somewhat above average employment growth, this doesn't change the overall picture, especially considering that only 0.8% of private sector workers were employed in Mining compared to for example 2.4% in information and 7% in Financial services, and as much as 12.45% employed in Leisure & Hospitality and 13.2% in Retail Trade

There is clearly therefore a structural shift in the U.S. economy towards lower paying sectors, something that of course lowers average pay and by doing so masks the extent that labor costs increases in every given sector.


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