The workers who earn the least have gained the most from the spike in wages during the Covid-19 pandemic.
A tight labor market that is spurring competition for front-line and entry-level employees, combined with the steady rise in the minimum wage, have pushed up earnings sharply for workers at the low end of the wage scale.
An analysis of recently released federal wage data shows that the increase in earnings for workers fortunate enough to keep their jobs during the pandemic has been unprecedented, compared with the modest wage growth during the tight job market in the years leading up to the Covid-19 outbreak.
Consider this: From the time the unemployment rate dipped below 6% at the start of 2015 until the end of 2019, the average annual wage earned by workers across the Buffalo Niagara region grew by a little more than 12% – a compounded growth rate of just under 2.4% a year.
It jumped by 9.5% last year alone. And wages kept rising at a 4.5% pace during the first quarter of this year.
That’s not to say that everyone got a 9.5% raise last year or is getting a 4.5% bump in pay this year. The average earnings are based on a worker’s hourly pay rate and the number of hours that they worked.
So pay raises, especially for front-line workers during the height of the pandemic last year, played a role. But so did a longer work week, as shorthanded employers also asked their workers to put in longer hours, which further drove up their total pay.
The biggest jump in weekly wages occurred in some of the lowest-paying parts of the economy, whose workers bore the brunt of the layoffs during the pandemic. Leisure and hospitality, which includes a high percentage of part-time workers at bars, restaurants and hotels, saw the biggest increase in weekly wages – 17.1% during the first quarter.
Even then, the average paycheck was only $583, a little more than half of the region’s average. And the spike in weekly earnings still wasn’t enough to entice all the workers that bar and restaurant owners wanted to hire during the summer dining season.
“Businesses have to do what they can do with what they have right now,” said Timothy Glass, the State Labor Department’s regional economist in Buffalo. “We’re definitely seeing a slowing in the labor force.”
For the moment, what those businesses have is a stubborn labor shortage. The region's unemployment rate hovered at 5.7% during August, the Labor Department reported Tuesday.
There are many reasons why, Glass said. The pandemic pushed some older workers to retire earlier than they otherwise expected. The lack of affordable child care forced other workers to stay home. Still others are wary of taking a front-line job with Covid cases rising again. The local labor force shrunk by around 2,800 people during August, the Labor Department reported.
The rise of vaccine mandates further constrains the labor pool, with about a third of Western New York adults still unvaccinated. That limits the jobs that those workers can hold, making it harder for them to find a job, and it may push some out of the labor force entirely, said Julie Anna Golebiewski, a Canisius College economist.
The rise in wages also plays a role. As entry-level pay rises, some workers who previously needed two jobs to get by now may only need one, between the rising wages and the scarcity of workers making it easier to pick up more hours at that job, she said.
The pandemic also has tilted the balance in wage negotiations. Before the pandemic, businesses managed to get through a tight labor market without having to raise wages much beyond inflation. Now workers are pushing for more, especially younger ones, said Fred Floss, a SUNY-Buffalo State economist.
With fast food jobs paying a minimum of $15 an hour, the bar for entry-level work has shifted higher, forcing other employers to adjust. Rising prices – with inflation now running at a more than 4% annual rate – also has workers asking for more after seeing the purchasing power of their paychecks erode during the pandemic.
“A lot of these jobs, like EMTs and health care aides, these are highly stressful jobs. They are physically demanding, and they don't pay a lot. So are you going to say, I can make $15 to $20 working at McDonald's or someplace else, or I can stay at my job making $15 to $20 an hour, and have all these stresses – and have to get vaccinated?” Glass said.
The wage data bears that out.
The second-biggest jump came in the education and health care sector, which includes a lot of lower-paid health care aides, teacher aides and school support staff. Their average weekly wage of $922 is almost 14% below the regional average.
Retail workers, one of the biggest beneficiaries from the rise in the minimum wage, have seen strong wage gains since 2019, when a 5% increase was followed by an 11% jump in 2020. Retail wages were up 5.3% in the first quarter.
Likewise, the highest-paying sectors had the smallest increases.
Weekly wages in manufacturing, which rose by 2.2% last year, fell by almost 3% in the first quarter, likely due to a combination of shorter work weeks and the wave of older workers retiring, with many of them being replaced by younger employees earning lower, entry-level wages.
Workers in financial services were more likely to be able to keep working from home during the pandemic. That meant they were more likely to keep their jobs and maintain their incomes. The average weekly wages for those workers rose by 4% in the first quarter, slightly less than the regional average.
A pair of surveys of service industry and manufacturing executives in New York and portions of Connecticut and New Jersey found that hiring is expected to continue at a brisk pace.
“Strong gains in employment and wages are expected in the months ahead, and prices are expected to continue to rise significantly,” economists at the Federal Reserve Bank of New York said in a survey of service industry executives conducted earlier this month.
The wage pressures aren’t likely to ease anytime soon.