Prosperity Watch Issue 46, No. 2: Wage growth has not happened in NC

A strong recovery should mean bigger paychecks. And yet, wage growth has been decidedly lackluster in the last several years, a sure sign that North Carolina’s comeback is far from complete.  Despite corporate profits being at an all-time high and productivity increasing, the recovery has not translated into improved earnings for the average worker. 

The major reason for the most recent stagnation in wages is that there are still more jobless workers than job openings. As the labor market returns to a healthy state, employers usually must offer more generous pay and benefits to keep or attract employees. There is no evidence that this is happening right now in North Carolina.  Ongoing monitoring of wage growth is necessary to not only demonstrate how working families are faring, but to also provide an indication of the strength of the state’s economic recovery.

The latest data from December 2014 shows that across the state average wages have remained flat year over year and in eight of the state’s fourteen metro areas average wages have fallen.  Economists generally say that wage growth needs to be at least 3.5 to 4 percent to deliver returns to worker’s paychecks or at least to ensure that labor is enjoying a stable share of the benefits of a recovering economy.   Such a wage target is also often used to inform macro-economic policy decisions about interest rates.

Analysis of nominal wage growth at the national level by the Economic Policy Institute points to the potential benefits to workers and the economy of wage growth higher than this threshold because it would allow workers to achieve greater alignment between productivity and wage gains. Year-over-year, nominal wage growth nationally since 2010 has continued to hover around 2 percent. While average nominal wage growth was stronger from 2009 to 2011 in North Carolina, since 2012 nominal wage growth has been negative or flat year over year. Indeed for North Carolina workers, wage growth of 4 percent year over year since 2009 would have meant that the median worker would have been earning $3.00 more each hour in 2014. 

The failure to achieve strong wage growth means that many North Carolina workers continue to struggle to keep up with rising costs and basic family needs.  At the state level, creating jobs to reduce slack in the labor market is a critical first step alongside providing temporary support to reduce hardship for working families.  Until earnings growth improves, the strength of the economic recovery remains in question and the share of benefits that are going to workers limited.

 

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