Payback And Back Pay

Big tech isn’t the US economy, folks.

A few ostensible “experts” seemed surprised Friday by a robust update on US hiring and wages in the context of recently announced layoffs and hiring freezes across tech companies.

Unfortunate as this most assuredly is, America is a place where modern day serfs toil for low wages in the services sector, not a utopian society of well-paid knowledge workers who float to work every day in self-driving, hydrogen-powered, Jetsons-style flying cars.

In short: The leisure and hospitality sector matters more for aggregate hiring and probably for wage-setting than whatever Meta, Microsoft, Twitter and Snap might be doing during a given month.

Although leisure and hospitality added 88,000 workers in November, the sector still hasn’t recovered all the jobs lost to the pandemic. With November’s additions, the sector remains down almost 6% from February 2020 levels (figure below).

That represents a shortfall of nearly a million workers.

If you want to fill open leisure and hospitality positions, you’ll need to pay up. That’s particularly true if you’re trying to lure workers away from competitors.

Job openings in the sector remain extraordinarily elevated, and the quit rate quite high (figure below).

At 5.5%, the quit rate there is more than double the overall rate.

One of the biggest “surprises” (and the scare quotes are there for a reason) in Friday’s jobs report was the hot pace of wage gains. Average hourly earnings grew at double the expected monthly rate, while the 12-month pace, at 5.1%, was sharply higher than anticipated.

5.1% sounds very high (and it is), but consider that for non-managers in leisure and hospitality, the annual pace of hourly earnings growth was more than two full percentage points higher last month, at 7.2%. It was the first month of re-acceleration in the 12-month rate since March, and only the second month-to-month increase in the annual rate this year (dark line in the figure below).

The figure also shows median annual pay growth for the industry from ADP’s “pay insights” data. On ADP’s figures, the YoY rate of pay growth in leisure and hospitality is still double digits (red line in the chart).

To the extent this is contributing to ongoing distortions in the labor market, and if those distortions are contributing to persistent inflation, we have only ourselves to blame. This is payback. And also back pay. We created an unsustainable economic model on the back of low-paid services sector workers who, in the pandemic, found cause to finally revolt against a system that consigned them to a paycheck-to-paycheck (or shift-to-shift for tip-based work) existence in perpetuity.

Of course, the tragic irony is that their demands for higher pay to reengage in menial, thankless jobs are now contributing to the same inflation impulse which hurts them the most given the concentration of non-managerial services sector employees in lower income cohorts. They’re also the people hurt the most by the Fed hikes aimed at curtailing inflation.

Quite a bit of the above represents anecdotal, off-the-cuff editorializing. You can, of course, slice, dice and parse the NFP report to determine precisely (i.e., quantify) which workers and which trends contributed the most to whichever aggregate you’re aiming to explain.

By contrast, my remarks here are simply a casual, ad hoc lament for the plight of millions who toil in obscurity across the vast US services sector, complimented by a few charts. Take it for what it’s worth.


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8 thoughts on “Payback And Back Pay

  1. One only has to look for a trades person to do work on your house to discover that wages have gone up huge. I cannot believe the hourly wages they are now asking for to fix long overdue house maintenance.

  2. I wonder (probably because I’m too old and a bit too lazy to check it out) how much of the rise in wages is a function of a coincidental social change from companies like WalMart, MCD and others in retail and services who finally realized that the minimum wage is crap and if Congress wouldn’t fix it they would. The sudden rush this past 18 months to boost entry-level wages into double digits in service firms, especially, has to have had an overall impact on costs and prices. Even $15/hour is not really a “good” job or much of a living wage. Those upper middle income folks trying to “preserve their lifestyles” should take a look at what they could do on $2500 a month. You chose the correct word to describe our significant underclass, those with no cash any more, when you called them serfs.

  3. I think the real issue is more that we changed the economic model than created an unsustainable one in which the workers revolted. Consider the following population and immigration statistics for the past decade:

    Year Population % Increase Immigration
    2012 317,465,478 1,031,631
    2013 319,586,792 0.668% 990,553
    2014 321,835,882 0.704% 1,016,518
    2015 324,108,395 0.706% 1,051,031
    2016 326,347,983 0.691% 1,183,505
    2017 328,310,825 0.601% 1,127,167
    2018 329,880,855 0.478% 1,096,611
    2019 331,433,217 0.471% 1,031,765
    2020 334,782,618 1.011% 707,362
    2021 335,157,329 0.112% 740,002 sourced from Homeland Security data sheets

    Couple that with the 2% decrease in the labor participation rate and you have all the macro elements needed for wage inflation, including the services sector. Looking further into the demographics, we are an aging population that requires greater immigration (setting aside the litany of arguments around what should be legal immigration) over the coming decades to sustain growth in sectors like services.

  4. What is the break-even cost of turning these horrible, low-paying service jobs over to machines? Certain fast food chains no longer use humans to take your order. AI is advancing as a substitute for certain customer service phone lines. Can a robot flip a burger? There is at least one fully automated restaurant already in existence (Google “Mezli”). Would the masses revolt about these jobs going the way of the Dodo? Skilled trade jobs are one thing, but the bottom tier of customer service has the same appeal as fruit picking.

  5. I have brought up declining immigration here on more than one occasion. I taught high school in East Los Angeles for twenty-five years. As you might expect, we have a large immigrant population. in the public schools there. Our enrollments in the public schools have been declining for five or more years now, to the point that some schools in my district actually have numerous classrooms that are going unused. It started after the 2016 election. Politics aside, many of the parents of our immigrant population worked in the construction, food/service/hospitality, and agricultural sectors of our economy. When Covid lock-downs hit, many of these families returned to Mexico and other parts of Latin America where restrictions were less severe and they could actually find work. One should also note that immigration varies by region in the US. With rents in the US skyrocketing, and stricter immigration policies still in place, they are not rushing back to the US like before. This is understandably driving up labor costs in the construction and service sectors of our economy. “Youngish” Americans are walking away from these jobs because they are actually hard, and simply pay too little money. No matter your political beliefs, good inexpensive labor is an important part of a functioning economy.

  6. Thank you for thinking of these people and their plight and writing about it. This neo-serfdom has been rising for 50 years now since capital began systematically crushing labour and creaming all of the productivity gains for more than a generation.

    What can’t continue, won’t continue …

  7. Back pay is pay back!

    So we have a little economic justice to sprinkle on our dystopia.

    But for old timesakes, I’d like to have another round of Congressional hearings on the minimum wage to have all the CEOs return vai their private jets to confirm their prior testimony that raising the federal minimum wage from $7.25 to $8.00 did, in fact, decimate their industries and lead to widespread unemployment and labor costs so high no one would be able to buy all the things that are currently sold out, not in stock, or on back order. They could have shared a bone when they had a chance with fairer base wages and raises, but instead milked their golden goose to death. Now replacement geese (and workers) cost twice as much and are headed higher.

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