Mon, Dec 22, 2014 - Page 9 News List

Economic recovery spreads to the middle class

While experts are predicting increases in wages, how much pay is set to rise and whether significant gains are to be felt by all working sectors remain contentious topics

By Nelson Schwartz  /  NY Times News Service

Illustration: Yusha

For years, even as the economy recovered and the stock market soared, most US workers saw little evidence of better times in their paychecks.

However, last month’s surprisingly large increase in both average hourly and weekly earnings, along with other encouraging data, has convinced many economists that falling unemployment and increased hiring are finally about to start paying off in terms of wage gains for a broader swath of workers.

“It’s the beginning of an uptick, and we should see it continue over the next year or two as the unemployment rate falls and the labor market tightens,” said Nariman Behravesh, chief economist at IHS, a private economics and forecasting firm. “You have to be careful, but my gut instinct is that this is the beginning of better wage performance.”

Still, even the seemingly good news for wages last month was not clear-cut. Although overall wages increased 0.4 percent — double what economists had been expecting — the gain for lower-paid workers in non-supervisory and production roles increased only 0.2 percent.


Just how much the typical employee’s pay might go up in the months ahead — and whether most workers are likely to see significant gains or just a select few — is a key question in the economic debate facing Wall Street, academia, officials in US President Barack Obama’s administration and, especially, the US Federal Reserve.

On Tuesday and Wednesday last week, Fed policymakers held their final meeting of the year, followed by a news conference from Fed Chair Janet Yellen, where she provided further hints about when the Fed plans to begin raising short-term interest rates after keeping them near zero for the last six years.

[Editor’s note: Yellen said the Fed would take a “patient” approach in deciding when to bump borrowing costs higher and it was unlikely to hike rates for “at least a couple of meetings,” meaning April next year at the earliest.]


The nascent uptick in wages has prompted further warnings from the more hawkish members of the Fed’s policymaking council, who want the central bank to start tightening monetary policy sooner, rather than later, to ward off what they see as a potential threat of inflation.

However, Yellen and a majority of Fed policymakers, pointing to evidence that inflation remains well under the central bank’s 2 percent target, do not appear to be unduly alarmed and probably still prefer to leave interest rates as low as possible until the trend is better established.

“Until it is unambiguous, people can spin it any way they want,” Pantheon Macroeconomics chief economist Ian Shepherdson said. “One month is a curiosity, two months is interesting and three months is a trend.”

The split at the Fed is echoed in Washington, primarily along partisan lines. On Capitol Hill, some Republicans say it is time for the Fed to act, while Democrats in the Obama administration, like US Secretary of Labor Thomas Perez, say there is no rush.

“I welcome the point when my first concern when I get out of bed in the morning is having to address rapid wage growth,” Perez said. “I’m not too worried about inflation.”

As for the argument that the Fed needs to move sooner, rather than later, Perez said he “couldn’t reject that in stronger terms.”

“It’s time for the middle class and the aspiring middle class to share in the dividends of their hard work,” he added. “The folks at the top end have been doing great and our prosperity hasn’t been shared.”

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