The job market may be gradually improving, but the gains aren't showing up in worker's paychecks.
And the resulting belt-tightening continues to weigh on an economy heavily dependent on consumer spending.
Randolph McKinney, 62, with an undergraduate degree in finance and a master's degree in economics, has been out of work since July. After 38 years as an insurance underwriter, with a salary that peaked at $86,000, he's taken on several interim jobs—for far less money.
"The last job I had was selling insurance making $32,000 a year," the Nashville resident said. "I'm capable of much more. But I can't find a job for more than that. And it's a long way down from 86 down to 32."
McKinney said he and his wife don't dine out nearly as often as they used to. They've cut back on charitable giving at church. He's cut back to a bare-bones cellphone plan. Instead of hiring local contractors, McKinney does his own house painting and plumbing and cleans out the gutters.
Multiply that frugal living across the entire U.S. economy—in which consumer spending accounts for roughly 70 percent of growth—and it's not hard to see why the economy is stuck in low gear. While the latest data showed growth perking up to a 3.6 percent annual pace, about half of that growth came from a build-up in inventories—the result of weak demand for those goods.
Five years after the Great Recession, millions of unemployed Americans are gradually getting back to seeing a steady paycheck. The latest data from the government showed the unemployment rate fell faster than expected in November—to 7.0 percent—as employers added 203,000 new jobs last month.
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But even as they get back to work, those paychecks have barely budged since the downturn began. The average hourly worker saw their earnings rise by 4 cents—to $24.15 an hour.
With millions of qualified, experienced workers like McKinney willing to accept less pay in a tough job market, employers had little motivation to pay more, according to Joel Naroff, chief economist at Naroff Economic Advisors.
"As long as you have 20, 30 100 people applying for the same job, you don't have to pay up for workers. It's really that simple," he said. "And if somebody leaves, they're probably leaving at a higher wage than you have to pay to replace them."
Wage growth hasn't stalled for the very top earners—senior executives and the highest paid worker in finance—who have seen their compensation soar compared to the typical workers, according to data compiled by the Economic Policy Institute.
According to EPI's analysis, from 1978 to 2011, CEO compensation rose more than 725 percent, while pay for the average worker rose just 5.7 percent. As a result, while a CEO earned roughly 20 times the typical worker in 1965, that gap has exploded in the last 50 years.
Because wages for the highest earners typically include a big chunk of stock-related compensation, their pay gains are much more sensitive to the financial markets. That's why the gap between CEO pay and the typical worker peaked in 2000, narrowing sharply following the bursting of the dot-com bubble, and then began rising again as the markets recovered. With the collapse of the financial markets in 2008, the gap narrowed again and has begun widening again and the stock market hits new highs.
Meanwhile, the average worker has seen little or no increase in pay since the Great Recession left 10 percent of the workforce without a steady job.
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"The very weak labor market puts huge downward pressure on wage growth," said Heidi Shierholz, an economist at EPI. "Employers don't have to pay big wage increases to get and keep the workers when workers don't have a lot of other options."
Wages for those at the very bottom of the income ladder have been falling, in real terms, for the past 45 years. Despite periodic increases, the current federal minimum wage—adjusted for inflation—has about the same buying power as it did in the 1950s.