Low-paid workers see wages rise 3.2%

From the drive-thru clerk at McDonald's to the greeter at Wal-Mart, workers on the bottom rung of the workforce are getting raises, signaling a broadening of labor market gains that could give Federal Reserve Chairman Janet Yellen reason to raise interest rates this year.

Average hourly earnings in industries paying less than $12.50 an hour a year ago rose 3.2 percent in the 12 months through April, about 1 percentage point more than wage growth for the job market as a whole, according to Goldman Sachs Group Inc.

This development is being driven in part by state governments raising their minimum wages, and also through voluntary decisions by companies to raise employees' pay.

The Fed has been looking for evidence that improvement in the labor market isn't just confined to jobs in high-paying industries requiring specialized skills. Policymakers see wage increases as bolstering consumer spending and moving inflation up to the Fed's 2 percent target.

"The Fed probably finds it encouraging that even the less skilled segments of the population are seeing wage gains," said Roberto Perli, a former Fed economist who is now a partner at Cornerstone Macro LLC in Washington. "It's another sign that slack in the labor market is diminishing."

Central bank leaders will get another read on the job market today, when the government issues its monthly payrolls report for June.

Employers added about 230,000 jobs last month, above the monthly average for 2015, and the unemployment rate dropped to 5.4 percent from 5.5 percent, according to the median forecasts of economists surveyed by Bloomberg News. A private report Wednesday from ADP Research Institute showed companies increased payrolls in June by 237,000 positions, the most in six months.

The declining unemployment rate doesn't provide a complete picture of the job market, Yellen said during a June 17 news conference.

"There appear to be unusually large elements of slack," she said. Among them: About 6.7 million Americans were working part time for economic reasons in May, well above the 5.5 million average since 1995.

Yellen cited "tentative signs of stronger wage growth. I think it's not yet definitive, but it is a hopeful sign."

Lower-wage workers suffered more than others during and after the 18-month recession that ended in June 2009. The unemployment rate for U.S. workers with only a high school education peaked at 11 percent and remained at 5.8 percent in May. For those with a bachelor's degree or more, unemployment peaked at 5 percent and has fallen to 2.7 percent.

Atlanta Fed researchers found the biggest wage gains after the recession went to full-time workers and those with college educations. Now, those at the low end of the pay scale are catching up, according to a new wage-tracking index the Atlanta bank introduced this week.

"A lot of the wage increases happening now are going to people who basically haven't got a raise in five years," said Ethan Harris, co-head of global economics research at Bank of America Corp. in New York.

McDonald's Corp. announced plans in April to increase pay at U.S. company-owned stores by at least $1 above the local minimum wage. Wal-Mart earlier this year increased the pay of U.S. workers to at least $9 an hour. That was followed by pay raises at Target Corp. and TJX Cos.

Raising wages has helped Wal-Mart Stores Inc. retain workers and attracted more job applicants, Greg Foran, president of Wal-Mart's U.S. operations, said at a meeting with investors in June.

"That low-wage workers are getting bigger pay increases signals a broader acceleration in wage gains," said Mark Zandi, chief economist at Moody's Analytics in West Chester, Pa.

ManpowerGroup Inc. has started to see "some wage inflation" with broader demand for workers across industries.

"The hot skills are getting good wage increases, and they have been for some time," said Jeffrey Joerres, executive chairman of Milwaukee-based ManpowerGroup. "We're starting to see some wage increases in general manufacturing jobs, service jobs, call center jobs, slowly across the board."

Information for this article was contributed by Rich Miller and Erin Roman of Bloomberg News.

Business on 07/02/2015

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