Slow wage growth focus of Cleveland Fed’s Forefront, related infographic

Technological advances. Lower productivity. Fewer full-time workers. While the reasons given for more than a decade of slow wage growth vary, observers agree that stubbornly low wages impact society and the US economy.

Infographic shows declines (and modest increases) in wages by occupation

In the latest issue of Forefront, Federal Reserve Bank of Cleveland researcher Filippo Occhino identifies two factors keeping wage growth low: low productivity growth and the decline in labor income relative to capital income. Labor income includes wages, salaries, and other work-related compensation; capital income includes rent, interest, dividends, and capital gains.

One reason for labor’s declining share of income “could be simply technological change that has favored [investment in] capital,” says Occhino. Other reasons could be globalization, which allows firms to import goods from other countries, and the loss of bargaining power by labor.

Controlling for changes in occupation mix, Cleveland Fed economist Joel Elvery found that average inflation-adjusted wages in Ohio fell 3.5 percent between 2007 and 2013. “That means that people who didn’t change occupations experienced substantive real wage loss since the recession started,” he says.

Real average wages for the U.S. as a whole—keeping occupation mix constant—fell 0.6 percent in the same timeframe. (Kentucky’s wages also fell 0.6 percent, while Pennsylvania’s wages climbed 1.2 percent and West Virginia’s increased 0.8 percent.)

For 12 of the 22 major occupation groups tracked by the Bureau of Labor Statistics’ Occupational Employment Statistics program, average annual pay in 2014 was less than it was in 2004, as shown in this infographic: For Many, It's a Decade of Decline, which can be downloaded and reprinted.

From Teresa Carroll’s vantage point, the reason for slow wage growth in certain occupations is simple supply and demand. Where there is high supply and low demand (think light-industrial and logistics-related occupations), slow wage growth persists, says Carroll, senior vice president and general manager of KellyOCG, a group of the workforce solutions company, Kelly Services.

Carroll also notes that 35 to 50 percent of companies’ talent is not full time. “It’s giving companies an option to get the work done without increasing wages to their full-time workforces,” she says.

The Cleveland Fed’s Occhino expects wage growth to pick up as the unemployment rate continues to decline and the labor market tightens. “Recent data on wage growth have been more encouraging,” he says. Total compensation costs for all civilian workers increased 2.6 percent for the 12-month period ending March 2015 compared to the 1.8-percent increase for the 12-month period ending March 2014.

Read: The Why of Weak Wages

Where the growth is

A related Forefront article notes that of the 20 occupations projected by the Bureau of Labor Statistics to grow the most jobs between 2012 and 2022, 14 have a 2012 median annual pay of less than $35,000. The occupation expected to grow the most jobs—580,800—is personal care aide, whose 2012 median pay was $19,910 per year.

Forefront also asked some Clevelanders for their perspectives on slow wage growth

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Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell, doug.campbell@clev.frb.org, 513.218.1892