Job and Wage Growth Since the Great Recession

Wage growth since the beginning of the Great Recession has been slow. In the figure below, the average hourly earnings of production and nonsupervisory employees in the U.S. are presented over the last four recession-recovery periods as defined by the National Bureau of Economic Research. For each period, the lowest point in wage growth is identified and then centered at zero.*

As can be seen, over the last four business cycles, nominal wage growth initially declined for a number of months and then increased until the start of the next recession. In the three recession-recovery periods prior to the Great Recession, wages tended to rebound to a year-over-year growth rate of 4 percent.

In the present cycle (identified by the bold line), year-over-year wage growth has yet to exceed 3 percent since the low point. In this blog post, we’ll examine if the explanation for this slow growth could be compositional changes to the U.S. industry structure coupled with changes in the demographics of hiring.

Individuals’ wage income tends to be lower when they enter the workforce and then increase with age. An explanation for this pattern is that younger individuals enter the labor market with less skills than seasoned workers, making them relatively less productive.

Hence, if firms are skewing hiring toward younger workers, then one might expect slower wage increases and lower productivity growth. This could provide an explanation for the slow wage growth observed since the Great Recession.

Initially, we examined whether industry employment shares have varied between 1960 and 2018. The values used to construct this table are midyear values. This can be seen in the table below.

In 1960, manufacturing accounted for 28.4 percent of total employment. That share declined to 8.5 percent of employment by 2018.

In contrast, the share of employment in four areas of the service sector—financial services, professional services, leisure, and education and health—increased from 23.3 percent in 1960 to 46.7 percent in 2018.

This leads to a question of whether the service sector is hiring different types of workers than the manufacturing sector. If the service sector is hiring younger workers who are relatively less productive, then one would expect to find slower wage and productivity growth in the economy as a whole.

Since wage growth and productivity growth have been slower since of the start of the Great Recession, the table below focuses on data from the Bureau of Labor Statistics that report employment changes by industry and age group between 2011 and 2017.

An explanation of precisely what is reported in this table is warranted. Of the total employment increase over all industries, 13.7 percent was among the 16-24 age cohort. This number is simply the change in total employment for the 16-24 age cohort divided by the change in total employment over all industries. The industry age percentages are constructed in a similar manner.

Manufacturing, wholesale trade, retail trade, transportation, professional services, leisure, and education and health reported large increases in the 25-34 age cohort, while leisure, transportation and retail trade also had large increases in employment in the 16-24 age cohort. Because the 16-24 and 25-34 age cohorts are younger, they tend to have lower productivity and, hence, lower wages.

Large employment increases occurred in the wholesale trade and information sectors for the 35-54 age cohort, which tends to have higher wages. However, employment changes were negative in manufacturing and retail trade. The data also show an increase in employment among the older age cohorts in a few sectors.

What does this all mean? There is some evidence to suggest that the employment increases in some of the service industries have been concentrated among the younger age cohorts. To the extent that these individuals tend to have lower productivity and earn lower wages, changes in industry structure combined with age hiring trends could provide an explanation for the observed slower wage growth. Much more careful analysis is required.

* The data were revised following the post's publication, so an ALFRED chart showing the data as of the post's publication date has been swapped in for the original FRED chart.

¹ The values used to construct this table are midyear values.

Additional Resources

• On the Economy: How Many Workers Make Goods That Are Sold Overseas?
• On the Economy: GDP, Labor Force Participation and Economic Growth
• On the Economy: The Link between Wages and Switching Careers