At the same time, the world is in the grip of the most devastating pandemic in more than a century, and the economy shed a record-demolishing, livelihood-destroying total of 20.5 million jobs in April as the unemployment rate hit its highest levels since the Great Depression.
Companies don’t need to raise wages to compete for workers right now. Unemployment hasn’t been this high since the Great Depression. Millions of Americans desperately need to work, even if it means earning a bit less than they’re used to.
So why has earnings growth soared?
Well, it turns out it’s for the worst possible reason.
The coronavirus crisis has hit low-wage workers so hard that it busted our earnings measurements. Among the lowest-earning workers, about 35 percent lost their jobs. While in the highest-earning fifth of the private-sector workforce, just 9 percent did, according to a new working paper circulated by the University of Chicago’s Becker Friedman Institute.
From there, the math is elementary. When all the lowest earners get laid off for furloughed, they’re dumped from the data that the government uses to calculate earnings. And when you remove all the low numbers from the sample you’re averaging, you know what happens next: the average jumps.
So, nobody’s actually earning more. It’s just that many of the lowest earners are now earning nothing.
This downturn is very different from previous recessions, said Ahu Yildirmaz, economist at ADP research institute and one of the report’s authors. Its burden has fallen very unequally across earners.
For their analysis, Yildirmaz and her collaborators lean on ADP’s vast trove of U.S. payroll data. The firm processes payrolls for 26 million workers every month. Like the Labor Department, the economists found high wage growth in recent weeks — about 5 percent since the downturn began.
But when they restricted their analysis to workers who were still employed, they found wages remained flat. In other words, all of the growth was due to the obliteration of low-paying jobs.
Why were low-wage workers hit so hard? Because they’re most exposed to the pandemic. The lowest earners are more likely to work in hard-hit sectors such as food services, entertainment and retail. The economists found they’re also more likely to work for smaller businesses, which have suffered disproportionately during the downturn.
As a result, Yildirmaz estimates that 10 million low-wage workers have lost their jobs in the past six weeks — that’s more than the entire toll of the Great Recession.
“You can’t understate how historic this change in the labor market is,” said University of Chicago Booth School of Business economist Erik Hurst, another of the paper’s authors.
“The magnitude is on the level of the Great Depression. The speed is immensely faster. It took the Great Depression 2.5 years to see the employment declines we’re seeing in six weeks.”