MONEY Economy

Why Your Paycheck May Not Grow With the Economy

500lb weight on top of money
Kiyoshi Togashi—Alamy

Though the job market is improving, workers might have to wait a while longer to see those big raises they've been waiting for.

You may have heard that the U.S. economy is back. The nation’s gross domestic product grew by 4.6% and 5% in the last two quarters—the strongest increase since 2003; Americans are more confident about the economy than at any time since the recession; and gasoline prices are as low as they’ve been in more than five years, amounting to a huge tax break for consumers and businesses.

No wonder employers felt strong enough to add 321,000 jobs to the economy in November, while the unemployment rate was at a post-recession low of 5.8%.

Still, many workers have not seen a pick-up in pay even as the employment climate has improved. In fact private sector wages declined by 5 cents (or by 0.2%) in December, despite the economy adding 252,000 jobs.

Total compensation, which includes benefits like medical insurance, rose 2.1% from the same period a year ago. That’s actually a slight uptick from the post-recession norm, but well below pre-2008 levels.

Which is weird. As demand for workers improves, and the unemployment rate declines, you’d expect inflation to rise and wages to increase.

One reason why wages have grown so slowly is that for much of the recovery there’s simply been a lack of demand for goods from consumers as many Americans worked to get out from the terrible effects of the housing crisis.

Since my spending is your income, more dollars saved and fewer spent mean less economic activity resulting in a weaker labor market. And since the Federal Reserve already dropped short-term interest rates to practically zero, and Washington lawmakers are reluctant or disinterested in further fiscal stimulus, marginal relief is coming from D.C.

Another explanation might have to do with the nature of compensation.

In a recent report, the Federal Reserve Bank of San Francisco highlighted the notion of “sticky” wages.

The argument goes: Since businesses were unable to reduce wages as much as they wanted when the economy got really bad five years ago (short of firing people), they are now not inclined to raise salaries as the economy lifts off.

If wages are rigid against a terrible economy, they’re stagnant (at least for a while) when the tide turns. “Businesses hold back wage increases and wait for inflation and productivity growth to bring wages closer to their desired levels,” says the report authors’s Mary Daly and Bart Hobijn. “Since it takes some time to fully exhaust the pool of wage cuts, growth remains low even as the economy expands and the unemployment rate declines.”

While there’s a bit of rigidity to all wages, the authors found “industries with the most downwardly rigid wage structures before the recession have seen the slowest growth during the recovery.” This means that businesses that were able to lower pay when revenues dried up have been more likely to increase wages as the good times returned.

So people in the wholesale trade business (truck drivers to sales reps) saw wages increase relative to pre-recession levels, while those in construction have to make due on less income.

What does this mean for workers?

“The rigidity of wages in a number of sectors has shaped the dynamics of unemployment and wage growth and is likely to do so until labor markets have fully returned to normal,” per Daly and Hobijn. And with still elevated levels of the long-term unemployed, high numbers of workers in part-time positions that want full-time ones, and fewer people quitting their jobs than before the recession, we’re still in not normal labor market territory.

Investors, especially older ones with larger holdings in fixed-income, should take note, too. Without higher inflation, and especially wage growth, the Federal Reserve is likely to delay raising rates.

While recent Fed meetings minutes have been interpreted as having a more hawkish tone, rates aren’t likely to rise (or rise quickly) while workers still struggle to make up lost ground.

Updated to reflect on Jan. 9 jobs report.

TIME Economy

The Left’s Opening Gambit for 2016 Is All About Your Paycheck

Elizabeth Warren
Elizabeth Warren Sen. Elizabeth Warren ponders the nation's problems at a Senate Banking Committee hearing on anti-money laundering on March 7, 2013. Cliff Owen—AP

The unifying value for progressives in 2016? Wages, if leaders like Elizabeth Warren and Richard Trumka have anything to say about it

See correction below.

If unemployment and slow growth were the central economic issues of the last presidential election cycle, wage stagnation and inequality are shaping up to be the focal point of 2016. The U.S. is now solidly in recovery, posting 5 % GDP growth in the third quarter of last year. But growth isn’t necessarily the same as shared prosperity. Inflation-adjusted middle class incomes have actually gone down for the last decade, something even the most rabid free market advocates won’t quarrel with statistically. And working class wages have been stagnant for much longer than that. (On balance, men with only high school degrees haven’t gotten a raise since 1968.) In an economy made up of 70 % consumer spending, that’s obviously an economic problem: no spending equals no business investment equals no jobs equals no spending…you get the picture. But inequality is increasingly taking on social and cultural dimensions, evident in everything from the debate over immigration to the killings that have rocked Ferguson and New York.

Put simply, chronically flat wages are no longer just about the lifestyle divide between the 1 % and everyone else. They’ve become an issue of social justice, democracy, and stability.

The question is, who has an answer to the problem? Liberals will be taking a first crack at it this Wednesday (Jan. 7) at the AFL-CIO-sponsored summit on Raising Wages. As Massachusetts senator Elizabeth Warren, who’ll be giving the keynote address, told me in an exclusive interview in advance of the summit, “Things are getting better, yes, but only for some. Families are working harder, but not doing better. And they feel the game is rigged against them–and guess what–it is!”

In her speech, Warren will be talking through numbers from a database compiled by French academic Thomas Piketty (author of the best-selling Capital in the 21st Century) showing that while 90 % of the workers in the US shared 70 % of all new income between the 1930s and 1970s, things started to change in the 1980s, with the 90 % capturing essentially zero percent of all new income since then.

Funny enough, that’s around that time that the laissez faire economic policies advocated by President Reagan, and later, President Clinton’s administration, took off. Former Treasury Secretary Bob Rubin was the one who lobbied Clinton to roll back the Depression-era Glass-Steagall banking regulation that many (like Warren) believe was a key factor in the financial crisis (which, in and of itself, greatly exacerbated inequality, particularly for African American and Latino families). He and other Clinton advisors like Larry Summers also crafted changes in tax policy that allowed for the growth of stock options as the main form of corporate compensation, a trend that Piketty, Nobel laureate and former Clinton advisor Joseph Stiglitz and many other economists believe has been a reason for growing inequality. I asked Warren if she blamed such Rubinesque policies for our current wage stagnation problem. “I’d lay it right at the feet of trickle down economics, yes. We’ve tried that experiment for 35 years and it hasn’t worked.”

Which will be an interesting challenge for Hillary Clinton, the presumed Democratic front-runner for 2016, and those in her orbit to overcome. Neera Tanden, the policy director for Clinton’s 2008 presidential campaign, now head of the left wing think tank Center for American Progress, will also be speaking at the AFL-CIO summit and, next week, CAP will be debuting a brand new report on what can be done about wage stagnation. The report was spearheaded by none other than Larry Summers. When I mention to Tanden that many people might not associate Summers with “inclusive growth,” she insists that the document is “quite progressive” and that “he’s been right there with it.” This echoes what I’ve heard from other economic insiders about Summers shift away from his historic (some might say infamous) work in financial alchemy and toward more populist concerns like worker wages.

If this conversion has in fact taken place it could be described as either Biblical, or, given current public sentiment around Wall Street, opportunistic. CAP’s report will focus on what the US can learn from other developed countries like Australia, Canada, and Sweden, which have managed to keep worker wages relatively high in the face of globalization and technological disruption. It’s worth noting that they also have much more sensibly managed financial systems than the US.

One thing that all the VIP summit participants, including AFL-CIO president Richard Trumka, seem to agree on: the US is the outlier in developed economies in viewing workers as “costs” rather than “assets to be invested,” as Trumka puts it. It’s a philosophy that underscores America’s focus on the rights and profits of investors to the exclusion of everyone and everything else. It’s a mythology that will be under fire in 2016, as workers, business people, and politicians alike are beginning to question the viability of a system that encourages inequality-bolstering share buybacks rather than real economy investment, and a chase for quarterly profits over what’s best for the economy–and society—at large. On that note, Trumka will be announcing some big policy steps to put the wage issue front and center in the 2016 election conversation. “We want to establish raising wages as the key, unifying progressive value,” he says. “We want wages to be what ties all the pieces of economic and social justice together.” Sounds like a rallying cry to me.

Correction: A previous version of this story incorrectly stated the date of Hillary Clinton’s presidential campaign.

MONEY Family

If Santa Claus Were Paid, He’d Earn $140,000

Santa showing fan of $100 bills
Ivan Bliznetsov—Getty Images

If Santa was paid for the work he does, he'd make around $140,000 annually—a bit more than what moms would theoretically bring home, and twice what dad caregivers should earn.

According to the 2014 Santa Index, a “study” created by the all-purpose insurance information site Insure.com, Santa Claus would earn $139,924 annually if he were paid fair wages for all of the jobs he handles.

Researchers at the site come up with the estimate by adding up the various tasks that constitute Santa’s job description. It goes without saying that Santa has quite a unique skill set, including roles as a reindeer handler, professional shopper, cookie taster, and private investigator (knows if you’ve been bad or good). The bulk of Santa’s estimated salary comes as a result of overseeing the toy workshop, a job that falls under the domain of industrial engineering and would earn the big guy $116,742 per year. Meanwhile, Santa’s piloting skills, which he uses just once a year when delivering toys on his sleigh, would earn the highest hourly wages ($62.31, so $623 for putting in a ten-hour shift on Christmas Eve).

When all of the 15 different components of Santa’s job are tallied up—based on mean hourly wages and the rough hours per year worked—the total comes to just under $140,000. That’s roughly $20,000 more than what the average stay-at-home mom is worth and double what the average SAH dad is worth, according to lighthearted studies conducted by the career-research site Salary.com.

The job (and estimated hypothetical salary) of stay-at-home parents is a combination of roles that are very different than Santa’s, including van driver, laundry operator, cook, psychologist, and (household) CEO. While Santa’s varied roles would mean he’d log in roughly 83 hours per week on the job—with much longer hours toward the end of the year, presumably—stay-at-home moms report enduring even longer work weeks, averaging 96.5 hours weekly.

Santa Claus’s bearded “helpers”—the imitation for-hire Santas who work the malls and holiday parties at this time of year—don’t earn anywhere near Insure.com’s estimated value of the true Santa Claus. While some lucrative Santa gigs pay upwards of $75 or even $300 per hour, wages of $15 to $20 per hour are more likely, and a hardworking Santa with regular assignments can expect to pull in somewhere between $5,000 and $15,000 during the winter holidays.

Accurate, real-time salaries for thousands of careers.

Meanwhile, many survey participants think that $140,000 doesn’t come close to what Santa deserves in an annual salary. In an Insure.com poll, 9% of consumers said Santa should earn more than $200,000 annually, and 29% said that he should pull in a whopping $1.8 billion per year—a flat $1 for each child under age 15 on the planet.

We can’t find a parallel survey indicating how much children think their moms should be paid for all they do. If the question were ever asked, it would be wise to answer that moms (and dads too, of course!) deserve to make at least as much if not more than Santa Claus. Santa would surely agree that there’s nothing more valuable than a good parent—and remember, he’s watching.

 

TIME Innovation

Five Best Ideas of the Day: December 3

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. The Obamas should consider teaching in an urban public school after 2016.

By Valerie Strauss in the Washington Post

2. Tech journalism needs to grow up.

By Michael Brendan Dougherty in The Week

3. Despite conventional wisdom to the contrary, the surge strategy didn’t end the war in Iraq. We shouldn’t try it again against ISIS.

By Daniel L. Davis in The American Conservative

4. Adjusting outdated rules for overtime could give middle class wages a valuable boost.

By Nick Hanauer in PBS News Hour’s Making Sense

5. A new solar power device can collect energy even on cloudy days and from reflected lunar light.

By Tuan C. Nguyen in Smithsonian Magazine

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME Innovation

Five Best Ideas of the Day: December 1

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. Though manufacturing jobs — particularly in the auto industry — are making a comeback, the wages are low and not even keeping up with inflation.

By Catherine Ruckelshaus and Sarah Leberstein at the National Employment Law Project

2. Simple, human-centered adaptive technology can change lives for people with disabilities.

By Krithika Krishnamurthy in Economic Times

3. As the military finally integrates men and women, gender-segregated recruit training in the Marines must end.

By Lieutenant Colonel Kevin G. Collins in Marine Corps Gazette

4. A neutral review board — not the police department itself — should review officer-involved shootings.

By Michael Bell in Politico

5. After two peaceful elections, Tunisia demonstrates that fixing politics is easier than remaking a nation, and the problems that sparked the Arab Spring persist.

By Sam Kimball and Nicholas Linn in Quartz

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

MONEY Jobs

Don’t Count on Raises Despite Friday’s Jobs Report

Person popping balloon
Getty Images—Getty Images

Despite more Americans finding employment, workers shouldn't expect any big changes in their paychecks just yet.

Workers can be forgiven if they don’t rejoice in Friday’s jobs report.

Employers added 214,000 jobs in October, pushing the unemployment rate down to 5.8%. This is another sign the U.S. economy is starting to get on a roll.

Businesses have added an average of around 230,000 jobs a month since January, when the unemployment started off at 6.6%. Stocks have been hitting all-time highs. And the Federal Reserve just announced that it was ending the third round of its stimulative bond-buying program thanks in part to the fact that the labor market has been improving.

Despite these positive trends, though, there still remains significant slack in the labor market. Millions of discouraged workers who want a job have given up looking — or are working part-time when they prefer full-time employment.

Moreover, the long-term unemployed are still much less likely to find a job now compared to before the 2007-2009 recession, and employees still don’t feel confident enough about their situation to quit their job in search of a high paying one. Meanwhile the unemployment rate lags the pre-recession low by more than a percentage point.

This might help to explain why Americans are still so pessimistic about their personal finances.

Almost three in four Americans think the economy was permanently damaged by the Great Recession, according to research by Rutgers University, which is actually more pessimistic than right after the recession. Moreover, only 37% say their finances are good or excellent shape, per recent Pew Research Center data.

Workers also understand that whatever raises they do get probably won’t outpace inflation. Take the Employment Cost Index, which measures workers salaries and benefits. Before the recession, the ECI rose at a year-over-year rate of more than 3% for about two years. Since 2009, though, the ECI hasn’t jumped above 2.2% (which, to be fair, was last quarter.)

fredgraph

And while the Fed did decide to end its bond-buying — otherwise known as quantitative easing — short-term interest rates remain essentially at zero, with expectations of a small hike potentially put off until well into 2015. By keeping rates so low for so long, the Fed is essentially signaling that consumer demand just isn’t there. Yet consumer demand is an essential ingredient in the recipe for gaining raises.

“We didn’t hear anything that causes us to reconsider our outlook that the Fed will follow a ‘lower for longer’ course when it comes to interest rates,” wrote USAA’s John Toohey in a recent note. “The U.S. recovery from the 2008–09 financial crisis has been slow and at times fragile, so our thinking is that the Fed will not want to risk a setback by raising rates too quickly. What is ending now is the third round of QE since late 2008; after the first two wrapped up, economic gains soon stalled. The Fed has not forgotten this.”

This jobs report seems to be another brick in the slow rebuild of the U.S. economy following the disaster of six years ago. It is encouraging that the Fed feels the economy is strong enough to chug along without it pumping billions of dollars into the financial system each month.

But workers should remember how big a hole we’ve needed to climb out of. Millions are still struggling to get by, or even get a job. And without strong bargaining power, or full employment, workers shouldn’t expect a raise anytime soon.

TIME The Brief

#TheBrief: Why Even Red States Want a Higher Minimum Wage

The first minimum wage was $0.25. Today, that’s $4.22

San Francisco and Oakland voted Tuesday to increase their minimum wages, and so did four states that roundly backed Republicans. Rising standards of living and inflation may be what triggered this increase, but is paying workers more the one issue we can all agree on?

Watch #TheBrief to find out what’s driving the push to pay their workers more.

MONEY Federal Reserve

Janet Yellen Makes Less Than Over 100 Other Fed Staffers

Federal Reserve Chair Janet Yellen.
Federal Reserve Chair Janet Yellen. Dominick Reuter—Reuters

She's one of the most powerful people in the global economy, but doesn't pull down the top salary in her organization

As Chair of the Federal Reserve, Janet Yellen is one of the most powerful economic figures in the world. But she’s not exactly paid like it. In fact, she’s not even the highest paid employee in her own organization.

According to Reuters, which obtained data on the Federal Reserve’s salary structure from a Freedom of Information Act request, Yellen is paid less than at least 113 other Federal Reserve employees. She earns $201,700 a year, compared to the Fed’s highest paid employee, Inspector General Mark Bialek, who makes $312,000. He is followed by the bank’s four regional directors, the general counsel, and chief operating officer, all of whom take home a base pay of $265,000.

Why is Yellen paid less than her underlings? Yellen’s salary is set by Congress, but not the Fed’s senior staff.

As Reuters reporter Michael Flaherty notes, the Fed’s high salaries aren’t costing taxpayers a penny since the organization is funded by returns on the securities it owns. (The Fed’s not a normal federal agency, but a kind of public/private hybrid that’s supposed to operate independently but “within” the government.) However, that hasn’t stopped calls for more transparency: This is the first time the Fed has revealed how much its top brass make, and the information provided to Reuters only included those with salaries of at least $225,000 a year despite the request asking for the names of all board members with wages above $130,810—the highest salary on the usual federal payscale. Some Republicans in Congress have called for legislation that would require the Fed to create a searchable database of all Federal Reserve employees who make more than that sum.

While Yellen is almost certainly underpaid considering her responsibilities, don’t feel too bad for the Fed chair. Fed officials must disclose their wealth in ranges, and according to public records, Yellen and her husband hold assets worth somewhere between $5.3 million and $14.1 million.

In an almost too-perfect twist, the news about Yellen’s pay came on morning when she spoke at a conference about growing inequality.

MONEY Travel

The Hardworking Person You’ve Forgotten to Tip

Tip at Marriott hotel
Jeff Greenberg—Alamy

A new initiative from Marriott nudges travelers to tip their housekeepers.

American travelers are a pretty generous bunch. Virtually everyone tips restaurant staffers — 97%, according to a recent TripAdvisor survey. More than 80% of Americans tip taxi drivers, and 79% tip bellhops. Skipping the tip makes Americans anxious: 23% report feeling guilty when they don’t tip, and one in three Americans has tipped someone even when the service was bad.

But when Americans travel, they sometimes forget to tip the people who clean up after them: hotel housekeepers. Americans are less likely to tip housekeepers than other service workers; more than 31% report that they don’t tip hotel maids at all, according to TripAdvisor.

Now Marriott wants to offer a reminder. In a partnership with Maria Shriver’s nonprofit advocacy group, A Woman’s Nation, the hotel chain has launched a new initiative to place envelopes in hotel rooms where customers can leave “tips and notes of thanks.”

“Hotel room attendants often go unnoticed, as they silently care for the millions of travelers who are on the road at any given time,” states Marriott’s press release. “Because hotel guests do not always see or interact with room attendants, their hard work is many times overlooked when it comes to tipping.”

How much money should you leave? The American Hotel and Lodging Association, an industry trade group, recommends tipping housekeepers $1 to $5 a night, depending on the level of service and cost of the hotel. The Emily Post Institute concurs — its website recommends a tip of $2 to $5 a day.

Other important etiquette rules: Leave the tip every day, to ensure that whoever cleans the room that day gets the money. And be sure to put the cash in an envelope or leave a note next to the money saying “thanks” — any good housekeeper will be afraid to take cash if she’s not sure it belongs to her.

Even though hotel bills are getting bigger, the people who clean the rooms still make a pittance. During the first half of 2014, travelers paid an average of $137 a night for hotels in the United States, up 5% from last year, according to Hotels.com. On average, maids and housekeepers in the traveler accommodation industry make just $21,800 a year, according to the Bureau of Labor Statistics — below the poverty line for a family of four.

Which leads some people to ask — why doesn’t Marriott just pay its workers more, instead of asking customers to do it? For a $20.6 billion company MARRIOTT INTERNATIONAL INC. MAR 0.0382% , that’s a fair question. But for now, if your manners compel you to tip the taxi driver, the bellhop, and the concierge, don’t forget to leave a few bucks for the housekeeper, too.

MONEY Economy

The Real Reason Jobs Are So Slow to Come Back

Garden snail
Daly and Newton—Getty Images

It's not tax rates, or too much regulation, or college kids majoring in art history instead of computer science. This is a global slowdown.

Jobs growth has been frustratingly slow in this recovery. The headline unemployment rate is down to 6.1%, but there’s still a lot of slack in the labor market. Wages are stagnant, long-term unemployment is strikingly high, and an unusually large number of Americans are so discouraged about their prospects that they’ve stopped looking for work.

So what’s holding us back from a full recovery? Maybe taxes are too high. Or perhaps regulation is holding us back. Or too many people are going on disability. Or maybe—this theory is especially popular now—there’s something wrong with the workforce we have. Too many liberal arts majors, not enough welders and truckers and computer scientists.

The problem with those theories is that they are way too local. The jobs shortfall isn’t just an American thing—it’s global. Earlier this week, the World Bank released a report on jobs in the “G20″ group of major world economies. Missing jobs and stagnant wages is a story all around the world. Here’s a snapshot from the report, showing how far below the pre-crisis trend jobs growth has been:

Screen Shot 2014-09-11 at 4.58.17 PM
SOURCE: World Bank

So what is it that’s holding almost everyone back? The World Bank chalks it up to a weak “aggregate demand”—but that only gets us halfway to an answer. What’s harder and more controversial is figuring out why demand for goods and services, which is what ultimately convinces employers to hire, has been so sluggish. One possibility is that consumers are too nervous to kick-start a virtuous cycle, where they buy more and thus spur more production and more hiring. The report notes that consumers around the world found themselves mired in debt after the crash, and that the growth in their income has been disappointing. In advanced economies, the share of GDP that goes to employee pay and benefits has declined substantially.

Screen Shot 2014-09-11 at 4.53.46 PM
SOURCE: World Bank

But to bring the story back home to U.S., at least, the anxious consumer alone isn’t a good enough answer anymore. As economist Brad DeLong points out here, consumption in the U.S. isn’t actually down by that much. What is down, he says, is construction and government spending. And on government spending, what’s true in the U.S. has been true with a vengeance in Europe, where policymakers have pursued government austerity policies.

Rethinking education, or how we train the workforce, or tax policy, or regulations might very well help economic growth in the long run. Finding some way to boost the mood of consumers couldn’t hurt, either. But the big-picture view suggests a deeper problem. The economic crisis blew a massive hole in the global economy. And more than five years later, the evidence is mounting that governments around the world just did too little, too late to help mend the gap.

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