Pay Increases Went to Higher Paid Workers, Not Overtime

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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.