New York City’s Recovery Finally Starts Generating Wage Gains

April 13, 2015. In this report, FPI’s analysis shows that New York City’s recovery is finally starting to generate wage gains.

After years of wage and family income declines since the 2008-09 recession, several signs are emerging of real wage growth in New York City. The three major current government economic data sets all point to fairly widespread and firmly-established wage growth beginning in 2014.

  • Bureau of Labor Statistics (BLS) average private hourly earnings data show a 2.7 percent real gain for the six months to February 2015 vs. the same period a year ago, compared to an annual average decline of 0.4 percent from 2009 to 2013. (This pronounced improvement in real wage gains is not mainly a result of the slowing of inflation since early 2014; the improvement is apparent whether the comparison is done in nominal or inflation-adjusted terms.)
  • New York Labor Department census of employment and wage data show a 1.8 percent real increase in average private non-financial sector wages and a 2.2 percent real increase in average government wages for the first three quarters of 2014 compared to the same period a year earlier. Annual average real changes from 2009 to 2013 were 0.2 percent for private non-financial wages and -0.6 percent for government wages.
  • Data from the Current Population Survey, sponsored jointly by Census and BLS, show real wage gains across the spectrum in 2014 after declines from 2009 to 2013; low wage New York City workers saw 2-to-3 percent real hourly wage gains while the median wage rose by 7 percent and wages rose by nearly 8 percent for higher-wage workers. In contrast, average annual real changes form 2009-2013 were -0.1 percent for the first wage decile, -2.0 percent for the second decile, 0.8 percent for the median (or the fifth decile), and -0.2 percent for the ninth decile.

While the wage trend is clearly up over the past year, average wages for the typical New York City worker are still below where they were before the recession. Inflation adjusted average annual wages were 2.1 percent lower in 2014 than in 2007 for private non-financial workers. Because average weekly hours have fallen by nearly four percent since the recession began, real private average weekly earnings were also 2.1 percent lower in early 2015 than in the same months in 2008. (Family income data for 2014 will not be available until late September.)

Why is this recovery finally starting to generate wage gains after so many years of stagnant or declining wages and incomes? Rising labor demand and falling unemployment are key factors.

  • New York City’s job growth continued strong in 2014 for a fifth consecutive year with a greater share of job growth in middle- and high-wage jobs than earlier in the recovery;
  • Unemployment fell more sharply in 2014 than in prior years even though the city’s labor force continued to grow.

Employers responded by raising wages in many sectors of the local economy. In addition, policy choices played an important role.

  • Two state minimum wage increases have lifted the wage floor by 20 percent since 2013;
  • 2014 saw a flurry of activity in the government sector where union contracts raised wages for 300,000 workers who had labored for several years under expired contracts. Also, 70,000 1199 SEIU members working at private hospitals received 3 percent wage increases, as did 30,000 32BJ SEIU building service workers in residential buildings.

As long as the economy continues its moderate growth pace, average wages should continue to rise 2 to 4 percent a year over the next few years. Most of the settled City labor contracts will provide annual increases through 2017 or 2018.

It is very welcome that the recovery is finally generating real wage gains in New York City. Strong job growth and lower unemployment should create tight enough labor market conditions so that employers need to offer workers better pay. These long overdue wage gains will help hundreds of thousands of families cope with the city’s high living costs and will contribute to the sustainability of the recovery by pumping additional consumer spending into neighborhoods across the city. This will help extend the current expansion which is the first one in New York City since the 1960s that has not relied heavily on Wall Street.

Yet, further changes are needed so that the prosperity generated by the local economy is more broadly shared. Wage gains have been greatest for those who are already better-compensated. Public and private policies need to ensure better results for those lower down the wage spectrum.

Forty-two percent of New York City families, encompassing 2.7 million New Yorkers, have incomes below the level necessary to provide for basic family needs according to the new edition of the United Way-sponsored Self Sufficiency Standard for New York City.[1] Eighty three percent of the families below the self-sufficiency standard have one or more workers. Clearly, many workers just are not making wages adequate to sustain their families without having to turn to government for assistance. Government assistance is essential and should be available to aid families in need. But, wages for hundreds of thousands of low-wage workers continue to fall short in allowing them to provide for their families.

Additional policy actions will be needed to make sure that lower-wage workers see meaningful wage gains. For example, the sector of the city economy that pays the lowest average wages is Social Assistance, largely comprised of nonprofit organizations providing social services under contract to government, with the City by far the largest funding source. City government has a responsibility to fund wage increases in the Social Assistance sector where half of the workforce that is predominantly women of color earn less than $15 an hour.

In addition, Albany should follow the lead of a growing number of other states that are raising minimum wages well above $10 an hour. A target of $15 an hour may seem like a lot compared to current minimum wage levels ($7.25 federal, $8.75 New York State). On an annual basis that comes to about $31,000—roughly the supplemental poverty measure for a 4-person family as estimated by the City’s poverty research office, the Center for Economic Opportunity.

For wage gains to continue, it is important that the Federal Reserve keep interest rates low enough so that it doesn’t choke off economic growth, and with it, the long-delayed promise of rising living standards for millions of New Yorkers. Inflation has averaged only 1.5 percent per year over the past two years and the Blue Chip Consensus forecasts projects consumer inflation of only 0.3 percent in 2015 and 2.2 percent in 2016. As long as inflation stays in the low single-digit range there is no basis for the Fed to put the brakes on economic growth.

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[1] Diana M. Pearce, Overlooked and Undercounted, The Struggle to Make Ends Meet in New York City, Prepared for the Women’s Center for Education and Career Advancement with support from The United Way of New York City, The New York Community Trust, and City Harvest, December 2014. Seventy-eight percent of households with inadequate incomes are headed by a person of color.