Macroblog

June 1, 2018

Part-Time Workers Are Less Likely to Get a Pay Raise

A recent FEDS Notes article summarized some interesting findings from the Board of Governors' 2017 Survey of Household Economics and Decisionmaking. One set of responses that caught my eye explored the connection between part-time employment and pay raises. The report estimates that about 70 percent of people working part-time did not get a pay increase over the past year (their pay stayed the same or went down). In contrast, only about 40 percent of full-time workers had no increase in pay.

This pattern is broadly consistent with what we see in the Atlanta Fed's Wage Growth Tracker data. As the following chart indicates, the population of part-time workers (who were also employed a year earlier) is generally less likely to get an increase in the hourly rate of pay than their full-time counterparts. Median wage growth for part-time workers has been lower than for full-time workers since 1998.

This wage growth premium for full-time work is partly accounted for by the fact that the typical part-time and full-time worker are different along several dimensions. For example, a part-time worker is more likely to have a relatively low-skilled job, and wage growth tends to be lower for workers in low-skilled jobs.

As the chart shows, the wage growth gap widened considerably in the wake of the Great Recession. The share of workers who are in part-time jobs because of slack business conditions increased across industries and occupation skill levels, and median part-time wage growth ground to a halt.

While part-time wage growth has improved since then, the wage growth gap is still larger than it used to be. This larger gap appears to be attributable to a rise in the share of part-time employment in low-skilled jobs since the recession. In particular, relative to 2007, the share of part-time workers in the Wage Growth Tracker data in low-skilled jobs has increased by about 3 percentage points, whereas the share of full-time workers in low-skilled jobs has remained essentially unchanged. Note that what is happening here is that more part-time jobs are low skilled than before, and not the other way around. Low-skilled jobs are about as likely to be part-time now as they were before the recession.

How does this shift affect an assessment of the overall tightness of today's labor market? Looking at the chart, the answer is probably “not much.” As measured by the Wage Growth Tracker, median wage growth for both full-time and part-time workers has not been accelerating recently. If the labor market were very tight, then this is not what we would expect to see. The modest rise in average hourly earnings in the June 1 labor report for May 2018 to 2.7 percent year over year, even as the unemployment rate declined to an 18-year low, seems consistent with that view.  A reading on the Wage Growth Tracker for May should be available in about a week.

John Robertson, a senior policy adviser in the Atlanta Fed's research department

• June 1, 2018 in
  • Data Releases
  • Economic conditions
  • Employment
  • Labor Markets
  • Wage Growth
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April 18, 2018

Hitting a Cyclical High: The Wage Growth Premium from Changing Jobs

The Atlanta Fed's Wage Growth Tracker rose 3.3 percent in March. While this increase is up from 2.9 percent in February, the 12-month average remained at 3.2 percent, a bit lower than the 3.5 percent average we observed a year earlier. The absence of upward momentum in the overall Tracker may be a signal that the labor market still has some head room, as suggested by participants at the last Federal Open market Committee (FOMC) meeting, who noted this in the meeting:

Regarding wage growth at the national level, several participants noted a modest increase, but most still described the pace of wage gains as moderate; a few participants cited this fact as suggesting that there was room for the labor market to strengthen somewhat further.

Although wages haven't been rising faster for the median individual, they have been for those who switch jobs. This distinction is important because the wage growth of job-switchers tends to be a better cyclical indicator than overall wage growth. In particular, the median wage growth of people who change industry or occupation tends to rise more rapidly as the labor market tightens. To illustrate, the orange line in the following chart shows the median 12-month wage growth for workers in the Wage Growth Tracker data who change industry (across manufacturing, construction, retail, etc.), and the green line depicts the wage growth of those who remained in the same industry.

As the chart indicates, changing industry when unemployment is high tends to result in a wage growth penalty relative to those who remain employed in the same industry. But when the unemployment rate is low, voluntary quits rise and workers who change industries tend to experience higher wage growth than those who stay.

Currently, the wage growth premium associated with switching employment to a different industry is around 1.5 percentage points and growing. For those who are tempted to infer that the softness in the Wage Growth Tracker might signal an impending labor market slowdown, the wage growth performance for those changing jobs suggests the opposite: the labor market is continuing to gradually tighten.

John Robertson, a senior policy adviser in the Atlanta Fed's research department

• April 18, 2018 in
  • Data Releases
  • Employment
  • Labor Markets
  • Wage Growth
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February 28, 2018

Weighting the Wage Growth Tracker

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The Atlanta Fed's Wage Growth Tracker (WGT) has shown its usefulness as an indicator of labor market conditions, producing a better-fitting Phillips curve than other measures of wage growth. So we were understandably surprised to see the WGT decline from 3.5 percent in 2016 to 3.2 percent in 2017, even as the unemployment rate moved lower from 4.9 to 4.4 percent.

This unexpected disconnect between the WGT and the unemployment rate naturally led us to wonder if it was a consequence of the way the WGT is constructed. Essentially, the WGT is the median of an unweighted sample of individual wage growth observations. This sample is quite large, but it does not perfectly represent the population of wage and salary earners.

Importantly, the WGT sample has too few young workers, because young workers are much more likely to be in and out of employment and hence less likely to have a wage observation in both the current and prior years. To examine the effect of this underrepresentation, we recomputed median wage growth after weighting the WGT sample to be consistent with the distribution of demographic and job characteristics of the workforce in each year. It turns out that this adjustment is important when the labor market is tight.

During periods of low unemployment, young people who stay employed tend to experience larger proportionate wage bumps than older workers. In 2017, for example, the weighted median is 40 basis points higher than the unweighted version. However, both the unweighted version (the gray line in the chart below) and the weighted version of the WGT (the blue line) declined by a similar amount from 2016 to 2017. The decline in the weighted median is also statistically significant (the p-value for the test is 0.07, indicating that the observed difference is unlikely to be due to chance).

Download data 

Another issue that could affect comparisons of wage growth over time is the changing demographic characteristics of the workforce. In particular, we know that workers' wage growth tends to slow as they approach retirement age, and the fraction of older workers has increased markedly in recent years. To examine this trend, we re-computed the weighted median, but fixed the demographic and job characteristics of the workforce so they would look as they did in 1997.

Our 1997-fixed version shows that median wage growth in recent years would be a bit higher if not for the aging of the workforce (the dashed orange line in the chart below). Moreover, this demographic shift appears to explain some of the slowing in median wage growth from 2016 to 2017. Whereas the 1997-fixed median also slows over the year, the difference is not statistically significant (a test of the null hypothesis of no change in the 1997-fixed weighted median between 2016 and 2017 yielded a p-value of 0.38).

Download data 

Long story short, our analysis suggests that median wage growth of the population of wage and salary earners is currently higher than the WGT would indicate, reflecting the strong wage gains young workers experience in a tight labor market. Moreover, the increasing share of older workers is acting to restrain median wage growth. Although the decline in median wage growth from 2016 to 2017 appears to be partly the result of the aging workforce, there still may be more to it than just that, and so we will continue to monitor the WGT and related measures closely in 2018 for signs of a pickup. We also want to note that with the release of the February wage data in mid-March, we will make a monthly version of the weighted WGT available.

By John Robertson, a senior policy adviser in the Atlanta Fed's research department, and

Ellyn Terry, an economic policy analysis specialist in the Atlanta Fed's research department

• February 28, 2018 in
  • Data Releases
  • Employment
  • Labor Markets
  • Wage Growth
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January 17, 2018

What Businesses Said about Tax Reform

Many folks are wondering what impact the Tax Cuts and Jobs Act—which was introduced in the House on November 2, 2017, and signed into law a few days before Christmas—will have on the U.S. economy. Well, in a recent speech, Atlanta Fed president Raphael Bostic had this to say: "I'm marking in a positive, but modest, boost to my near-term GDP [gross domestic product] growth profile for the coming year."

Why the measured approach? That might be our fault. As part of President Bostic's research team, we've been curious about the potential impact of this legislation for a while now, especially on how firms were responding to expected policy changes. Back in November 2016 (the week of the election, actually), we started asking firms in our Sixth District Business Inflation Expectations (BIE) survey how optimistic they were (on a 0–100 scale) about the prospects for the U.S. economy and their own firm's financial prospects. We've repeated this special question in three subsequent surveys. For a cleaner, apples-to-apples approach, the charts below show only the results for firms that responded in each survey (though the overall picture is very similar).

As the charts show, firms have become more optimistic about the prospects for the U.S. economy since November 2016, but not since February 2017, and we didn't detect much of a difference in December 2017, after the details of the tax plan became clearer. But optimism is a vague concept and may not necessarily translate into actions that firms could take that would boost overall GDP—namely, increasing capital investment and hiring.

In November, we had two surveys in the field—our BIE survey (undertaken at the beginning of the month) and a national survey conducted jointly by the Atlanta Fed, Nick Bloom of Stanford University, and Steven Davis of the University of Chicago. (That survey was in the field November 13–24.) In both of these surveys, we asked firms how the pending legislation would affect their capital expenditure plans for 2018. In the BIE survey, we also asked how tax reform would affect hiring plans.

The upshot? The typical firm isn't planning on a whole lot of additional capital spending or hiring.

In our national survey, roughly two-thirds of respondents indicated that the tax reform hasn't enticed them into changing their investment plans for 2018, as the following chart shows.

The chart below also makes apparent that small firms (fewer than 100 employees) are more likely to significantly ramp up capital investment in 2018 than midsize and larger firms.

For our regional BIE survey, the capital investment results were similar (you can see them here). And as for hiring, the typical firm doesn't appear to be changing its plans. Interestingly, here too, smaller firms were more likely to say they'd ramp up hiring. Among larger firms (more than 100 employees), nearly 70 percent indicated that they'd leave their hiring plans unchanged.

One interpretation of these survey results is that the potential for a sharp acceleration in GDP growth is limited. And that's also how President Bostic described things in his January 8 speech: "For now, I am treating a more substantial breakout of tax-reform-related growth as an upside risk to my outlook."

By Dave Altig, executive vice president and research director,

Brent Meyer, a policy adviser and economist,

Nick Parker, director of surveys, all in the Atlanta Fed's research department

• January 17, 2018 in
  • Business Cycles
  • Data Releases
  • Economic conditions
  • Economic Growth and Development
  • macroeconomics
  • Surveys
  • Taxes
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