“Show me the money” is the rallying cry from American families.
The jobs that were lost during (and after) the brutal recession have largely come back. But businesses haven’t felt much pressure to pay workers more. Until now.
The typical wage in America is now $828 a week, according to the Labor Department. During the depths of the Great Recession, weekly wages fell under $730.
CEOs are feeling the political and economic pressure to raise wages. Starbucks, JPMorgan Chase, United Airlines and Walmart all announced pay hikes this year.
Some executives have even started complaining. Chipotle blamed higher wages for some of its recent slump in profits. It specifically cited “very significant” minimum wage increases from new laws lifting wages to $10, $12 or even $15 an hour in places. Cintas, a company that makes work uniforms, said rising wages and overtime laws “can have a pausing effect on our customers.”
“The upward wage trend is going to continue,” says Randy Frederick, managing director of trading at Schwab. “It will put pressure on earnings.”
The focus now — from Main Street to Wall Street to the campaign trial — is on how much MORE wages will rise.
Good-paying jobs and healthy wages have been hot topics on the 2016 campaign trail for both Hillary Clinton and Donald Trump. Workers are demanding more money at their jobs, and they finally have some leverage to ask for higher pay since it’s getting harder to find people to fill jobs.
Big companies are raising the little’s guys wages
Wall Street is already alarmed at this trend. CEOs are increasingly getting asked: Will the raises hurt profits and stock prices? Mentions of “wage” or “wages” on earnings calls this quarter have doubled compared to a year ago, according to FactSet.
In order to pay for wage increases, companies have to hike prices on their goods (Starbucks has raised coffee prices to help offset pay hikes), cut expenses elsewhere or else live with lower profits. For now, most companies appear to be managing by trimming elsewhere. But that won’t be able to go on forever.
“What we want to try and do is really get ahead of any federal or state mandate to be the employer of choice,” Starbucks CEO Howard Schultz said on a recent call with Wall Street analysts who asked why the popular coffee chain is increasing pay by at least 5% an hour in October (that’s about 50 cents, based on the average barista wage listed on Glassdoor.com).
In other words, Schultz was basically admitting: We’re paying more because it’s harder to find good workers. But investors are hearing: Look out, costs are going up. With the U.S. stock market at record highs, investors are weary of anything that would cause stock prices to drop.
Why it’s happening now
For years, big businesses didn’t have to raise wages because there were nearly seven unemployed workers for every one job opening in the midst of the recession. Companies had their pick of people. If workers didn’t like the pay or conditions, employers could just easily say: “goodbye,” because it was easy to get someone else to fill that seat.
Now, there’s barely more than one job seeker for every job opening. Keeping good employees around is harder, and businesses from Silicon Valley tech hubs down to coffee shops are increasing pay to attract and retain workers.
The jump in weekly wages from under $730 to nearly $830 today looks big, but you have to factor in that stuff costs more now than eight years ago, so pay needs to be higher to buy the same amount as then. If you adjust for inflation, that $730 wage from 2008 is equal to about $817 now.
So, the average worker is finally making more, but only just.
In fact, the typical American earns about the same today as in 1996 (after adjusting for inflation). There’s hope that may finally change now that wages are going up for more than just the highest skilled workers like doctors, lawyers and coders.
Jobs are a big focus in the current election.
Clinton has promised “the boldest investment in good-paying jobs since World War II.” Trump has vowed to “bring the jobs back from China.”
There’s only so much a president can do from the White House to create jobs and raise wages. But if unemployment stays below 5%, and more and more companies announce increases, there’s real reason for American workers to think they will keep getting more money, even if it that translates into lower profits for Wall Street.