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Home Publications Blogs Beat the Press Pay Increases Went to Higher Paid Workers, Not Overtime

Pay Increases Went to Higher Paid Workers, Not Overtime

Sunday, 07 July 2013 11:25

The Wall Street Journal had a piece touting the broad nature of the job growth in Friday's jobs report. The piece noted that average hourly wages rose 10 cents last month and are now up by 2.2 percent from year ago levels. It then added:

"However, that may have more to do with overtime pay than real wage increases, said Peter Cappelli, a professor at the University of Pennsylvania's Wharton School and director of its Center for Human Resources. The Labor Department distinguishes regular pay from overtime only for manufacturing jobs.

'I don't see a lot of wage pressure yet on the economy,' Mr. Cappelli said. "No one's talking about raising wages.'"

While Cappelli is right about the weakness of the labor market, he is mistaken about the importance of overtime pay in the June increase. The amount of overtime hours did not rise in manufacturing, where is it most frequently used. Also, there was no increase in the length of the average workweek more generally.

The more obvious explanation is that the pay increases went to higher end workers. Average hourly wages for production and non-supervisory workers (roughly 82 percent of the workforce) rose by just 5 cents. This means that the pay of supervisory and other non-production workers must have risen by an average of more than 25 cents in June.

In contrast to the view expressed in this piece, job growth was narrowly concentrated in June. Restaurants, retail, and temporary employment accounted for more than half of the job gains in June for the third month in a row. These are also among the lowest paying sectors in the economy. Workers tend to take jobs in these sectors only when no other jobs are available.

Comments (5)Add Comment
written by medgeek, July 07, 2013 12:56
this note was so good, you posted it twice
pay increases?
written by pete, July 07, 2013 9:40
We have 20% or so unemployment, much worse in the urban poor. Seems smarmy to try and argue that we need pay increases until we get down to some "natural" rate, about another 2% drop or so in the official rate.
Anything else will be a disaster like the 1937 wage increases that brought on another dip.
Wage inflation
written by jonny bakho, July 08, 2013 5:22
OMG: Wage inflation is over 2 percent. Even though we have millions unemployed, this will cause some monetarists to demand tighter money to keep wage inflation at 2 percent.

The 2 percent inflation target is too low, especially following a recession with below target inflation.
written by kharris, July 08, 2013 11:44
Odd that the Journal would see widespread job growth when the data don't support that conclusion. The hiring diffusion index fell in June and three broad categories of employment account for 170k of the 193k job gains reported. Most of the early analysis I read made mention of the rise in part-time employment, the tiny gain in goods-producing jobs and other evidence of the poor quality of job gains.

I don't want to claim that it's easy to get these things right, but this is the vaunted Journal, after all. Moderate effort in going through the data tables is all that's required to see that job growth was not widespread in June. The point about overtime, well, that is easy to know. You just look at the series called "overtime".
wage inflation lags price inflation, always has...
written by pete, July 08, 2013 8:52
This is the conundrum...this is why 40 years of loose monetary policy have actually lowered real wage growth, or actually it is stagnant, because wages cannot keep up. Loose monetary policy benefits capital, not labor. Even Marx knew this...

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.