Wages Finally Rising, but Only for Lowest Income Jobs

Since the recovery of the US economy following the “Great Recession” of 2007, unemployment has steadily declined but wages have remained virtually unchanged, an historic anomaly. However, wages for one segment of the population have seen a gradual up-tick: minimum wage workers.

Since the recovery of the US economy following the “Great Recession” of 2007, unemployment has steadily declined but wages have remained virtually unchanged, an historic anomaly. However, wages for one segment of the population have seen a gradual up-tick: minimum wage workers.

This trend continued in the beginning of April 2015 when McDonald’s announced its promise to raise pay for hourly employees by more than 10%. According to a report by the Wall Street Journal, McDonald’s pledged to raise employees at company-operated stores at least $1 more than the local minimum wage. This will cause average pay for the lowest rung of McDonald’s employees to increase to more than $10 per hour (currently it is about $9.01).

According to the US Labor Department, McDonald’s workers average wages are above the industry average for fast-food restaurants. Although McDonald’s can only mandate the change at its approximately 1,500 company-owned locations across the US, it does put pressure on the more than 10,000 franchisees in its network to match the gesture. It also applies considerable pressure to competitors to raise their salaries or risk losing employees and public goodwill sentiments.

While this raise sounds remarkable given the stagnant rate of wage growth in the US economy as a whole, this announcement is actually quite common for the food industry. Pay gains in this industry have far outpaced the sluggish rate of growth in other industries. According to the Wall Street Journal, the average hourly pay rate for non-manager employees at fast food restaurants rose 3.5% in January to $9.54 an hour. That is significantly above the 2.2% rate of wage growth for all other industries.

But, fast food is actually not the fastest growing sector of the food service industry. Other jobs in this sector are growing at the even more impressive rate of 3.9%. While this asymmetric rate of growth is surprising, many analysts believe it could lead to a cascade of wage increase in other sectors. The upward pressure on wages from the bottom rungs of the pay ladder may pressure employers to increase salaries for those higher up the pay ladder or face a possible loss of experienced talent.

Of course, wage increases are a double-edged sword: increasing wages typically lead to inflation that can in turn, stifle further economic growth.