MNI EXCLUSIVE: US Wages Under Pressure As Fiscal Aid Dwindles

U.S. wages are likely to fall faster as government support for individuals and households under the CARES Act evaporates and a faster-than-expected jobs market recovery shows signs of slowing, labor market experts told MNI.

An added USD600 a week in federal unemployment benefits and forgivable loans for small businesses under the Paycheck Protection Program likely supported wages through the summer despite significant downward pressure on labor demand caused by the Covid-19 pandemic, economists said.

Now that the programs have ended, wages could fall more quickly. Waning support for households will also reduce purchasing power, putting pressure on employment and hourly earnings, said Heidi Shierholz, a former top labor economist under the Obama administration.

"The dominant thing putting downward pressure on wages is the very high unemployment," she said in an interview. "That's the driving factor."

The expiration of that extra cash will also push up the unemployment rate by suppressing aggregate demand for goods and services, hurting workers and their bargaining power, she said. It's also possible that the expiration of enhanced unemployment benefits hurts wages directly because workers' reservation wage will similarly fall, she added.

SUPPORTS GONE

The extra USD600 a week from March through July and a modest extension of added benefits for several weeks after "may have forced employers to try to incentivize people to come out by offering a higher wage," according to James Stinchcomb, a researcher at consultancy Chmura Economics who presented an analysis of recent job postings data at a recent National Association of Business Economics conference.

While the Covid-19 pandemic through June resulted in a 32.1% decline in overall labor demand, based on job postings data, wage growth held relatively steady, rising by an average of 3.7 pps faster compared to a year earlier, though earnings varied greatly across occupations, according to Chmura research. Health care sector wage growth rose 22.2 pps, while growth for workers in education fell 15.8 pps.

Chmura estimates that average annual earnings for unemployed workers receiving the extra USD600 on top of their regular state unemployment benefits topped USD50,000 -- far above the average yearly salary for jobs in hard-hit industries like food service or retail, according to the Bureau of Labor Statistics.

Pay may slip now as employers no longer have to contend with weekly unemployment checks offering more money, particularly for jobs on the lower end of the wage distribution, said Xiaobing Shuai, director of economic research at Chmura. "With this policy removed, we might see a drop," he said in an interview.

REHIRING SLOWDOWN

Research out of the San Francisco Fed found that wages for workers who were continuously employed during the pandemic has been flat, while those who became unemployed considered a job offer more valuable than benefits even if the latter amounted to more pay.Nicolas Petrosky-Nadeau, vice president of macroeconomic research at the Fed bank, said a slowdown in wage growth is likely coming anyway as economic uncertainty mounts and employers practice more caution in hiring."Unfortunately we're seeing a slowdown in the momentum of rehiring," he said. "If there were to be downward pressure on wages, I would expect that it would arise mostly from the overall softening of the labor market that we're at risk of experiencing during the fall."The CARES Act only provides unemployed workers with 39 weeks of benefits and the added USD600 was in place for less than half a year. That falls substantially short of a full year of wages, a point that unemployed workers likely took into account when considering returning to work, Petrosky-Nadeau said."A job is much more attractive even if your weekly pay on the job is below the weekly UI income," he said. "Your UI benefits will expire. And they will expire much sooner than the typical job."