Why the most important wage increase after the pandemic is staff

Businesses across the country are in dire need of workers as economic reopening collides with a tight labor market, but the boom in wage growth for manual workers is ahead of the pandemic.

Donna Kauffman, co-owner of a landscaping and construction company in Colleyville, Texas, said a tight labor market had raised her starting wage to $ 13.75 an hour, compared to lower wages in previous years.

Economic forecasters like Gary Shilling have seen an upward trend in wages for manual workers and manual services in recent years, growing faster than white collar wages and a trend reversal that has persisted for the past 30 years, according to the US Bureau of Labor Statistics.

“In general, at the worker level, you’re likely to see higher real incomes,” Shilling recently told CNBC.

Shilling says the “labor component” – the amount of GDP paid in wages, salaries and benefits – which has been declining for decades, is trending up, while the “capital component” – the amount of national income from invested capital – is trending downward tends.

For workers in labor industries such as construction, transportation and manufacturing, as well as workers in manual service sectors such as hospitality, leisure, hospitality, and beauty and health services, they have seen the highest wage leaps in recent years. These wages continue to rise after the pandemic.

On July 7, 2021, in San Rafael, California, a sign reading “Now Hiring” was posted in the drive way of a McDonald’s restaurant.

Justin Sullivan | Getty Images

Gad Levanon, head of the Labor Institute at the Conference Board, said the economy will depend on the reopening of manual jobs and the recent wage hike is due to labor shortages in these industries as the country continues to grapple with the aftermath of the ongoing pandemic.

The June non-farm payroll report showed an increase in average hourly wages across all industries, with employment growth of 343,000 in the leisure and hospitality sectors, more than half of which were in the hospitality industry. But employment in areas such as construction, transportation and manufacturing remained low.

Levanon says that despite the rise in wages, it is taking longer to find workers in these industries as these positions are usually filled with workers from lower socioeconomic status who are still affected by the pandemic. These jobs require personal interaction and practical skills that pose potential health risks to workers, and many of these workers will either not return to their jobs or will not be able to return to work due to factors such as lack of access to childcare and continued state unemployment benefits.

The discussion about why workers do not return to work remains highly controversial. Some say unemployment benefits deter workers, others say benefits don’t matter. Some say rising vaccination rates will encourage workers to come back, but others say the risks for vulnerable populations are still high.

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US Bureau of Labor Statistics

Some experts believe wage increases will stay and it will be up to companies to compensate for wage costs as more workers return.

“America is first and foremost a service economy,” said Daniel Zhao, Senior Economist at Glassdoor. “So with the economy reopening, I expect greater demand for personal services, and this will add to the coming boom in service roles and work.”

Sportswear company Under Armor is raising its minimum hourly wage for its retail and sales workers from $ 10 to $ 15 while restaurants like McDonald’s and Chipotle are raising their wages, and in April the White House raised the minimum wage for federal entrepreneurs, including jobs, to $ 15 for construction workers and mechanics.

Zhao says when companies like McDonald’s and Chipotle raise their minimum wages, it means they perceive labor shortages and wage inflation as long-term problems.

“If they only perceived this as a temporary pandemic lack of time, they would only be relying on one-time bonuses or recruitment bonuses,” Zhao said. “But the fact that they are raising wages shows that there are employers who believe the recruitment challenges will continue for a long time.”

Workers willing to do manual work are falling

While every industry is currently suffering from work constraints, Kauffman said she has seen a steady decline in workers willing to do practical work over the past 20 years.

According to a survey by the National Federation of Independent Business in June, 44 percent of companies have vacancies for skilled workers, and 66 percent of construction companies said they were not hiring enough skilled or skilled workers.

One reason workers aren’t returning to these jobs quickly is because of their bargaining power, says Gregory Daco, chief US economist at Oxford Economics. Employers must continue to meet higher wage and employment requirements in order to attract this workforce back.

A member of the Ironworkers Local 7 union installs steel beams on a skyscraper under construction during a summer heatwave in Boston, Massachusetts on June 30, 2021.

Brian Snyder | Reuters

The labor market for manual activities has been shrinking since the years leading up to the pandemic, according to Levanon, as older generations retire and there are fewer people doing these jobs. This trend will continue in the years to come.

“Retired baby boomers are people with lower education who do these worker and manual service jobs,” Levanon said. “And the majority of the younger generation it replaces are better educated and less willing to work in such professions.”

Kauffman said her landscaping company used to hire young adults, either high school students or out-of-college young adults, but gradually as high schools in her area started pushing college for more students and ending agricultural education programs, she has potential workers lost.

Daco says that while workers’ desire to perform these roles is an issue, there are more direct reasons for labor shortages and wage increases in both manual and manual service occupations. On average, there are enough people to do these jobs, he says, given the 6.4 million people who are not currently working but want a job, according to the June payroll report.

Skills shortages and job shortages in the place of residence of workers contribute to recruitment difficulties.

“They have workers, but they may not be in the right place at the right time,” said Daco. “Perhaps there are rural areas where people have to work in services, leisure or hospitality, but fewer people want to live there.”

Infrastructure spending can drive wages higher

While the debate in Congress and the White House over a draft federal spending and infrastructure bill continues, bipartisan support for strengthening physical infrastructure across the country, including adding and expanding roads, bridges, and highways, should meet the demand for workers and wages keep high pressure on employers.

The details of any specific plan passed by Congress are crucial, but Levanon says companies will continue to face extremely difficult recruitment barriers for construction workers and manual workers.

As federal spending plans become clearer, Daco expects increased pressure to fill these positions, which will drive wages higher, but not suddenly. He predicts a more gradual increase towards mid-2022 when infrastructure plans become a reality. And while current wages represent a starting point for the future, he does not see this as a starting point for a sustained surge in the wage boom for workers.

“I don’t think this is the start of wage inflation as wages will continue to rise at the same rate as they are indefinitely,” he said.

—MacKenzie Sigalos of CNBC contributed to this report