Slow-to-rise wages undercut workers, U.S. economic recovery

Don Holzschuh backed a white semitrailer up behind the hardware store in Isanti, Minn., on a gray January morning, slid open the back door with a clatter and got to work unloading pipe, Quikrete, dog food and charcoal.

The 59-year-old earns his living driving a truck to hardware stores from Grand Marais, Minn., to Galesburg, Ill.

He earns 41 cents a mile, exactly what he made 16 years ago.

"I felt comfortable, and I didn't have to worry," Holzschuh said of his life in the 1990s. "Now I have to worry, and that's the sad part about it. You shouldn't have to worry if you're working your butt off."

The unemployment rate has fallen dramatically in the past three years, the nation is adding jobs and economic growth accelerated in 2014. But wages have remained stubbornly stagnant for the average American worker.

It is a festering problem that undercuts the economic recovery. Five-and-a-half years after the recession ended, workers are still waiting for a significant raise.

Since 2009, inflation-adjusted average pay in the United States has risen only slightly.

Wages in Minnesota track the national trend. Since 2001, pay has crept upward by only $24, to $947 per week, or 0.2 percent annual growth. Any extra money workers get is swallowed by higher prices. What cost $1 in 1998 costs $1.45 today.

"I keep hearing how great it is. If you're a multimillionaire, I suppose, or somebody like a government worker that gets raises," Holzschuh said. "Everybody that I know, no one's getting a raise."

Pay typically takes longer to recover after a recession than the unemployment rate, said Mary Daly, an economist at the Federal Reserve Bank of San Francisco.

Wages don't drop much in downturns but also don't grow fast in recoveries, because during a downturn, bosses cannot cut pay as much as they would like without destroying morale, "which we know feeds into productivity problems," Daly said.

Companies make up for this by not raising pay much in the early years of a recovery. The wage cuts are "pent up," Daly says. Pay will rise only when employers have no choice but to offer more money to attract workers.

But that doesn't explain why wages aren't rising in Minnesota.

Here, wages for new hires, adjusted for inflation, have fallen since 2006, and they settled at $11.64 per hour in 2013. And the share of jobs held by new hires is growing, dragging down the average for all workers.

"Here in Minnesota, we're at 3.6 percent [unemployment] and we're still not seeing wage growth," said Steve Hine, a labor market economist for the state. "Everybody from the Federal Reserve to labor market information directors are wondering when is wage growth going to start to appear."

Meanwhile, corporate profits are spilling over and stocks have been near all-time highs. But the rewards of the recovery are not flowing to the average worker.

"Some people may be making more money, but they're working two jobs, or three," said Ann Markusen, a regional economist and professor emerita in the University of Minnesota's Humphrey School of Public Affairs. "I don't really think it's macroeconomics. I think it's the pressure for profits."

"Of the total pie that's going to workers and firms, more is going to firms and less is going to workers," said Sam Schulhofer-Wohl, an economist and research director at the Federal Reserve Bank of Minneapolis.

Another factor holding down wages is that American workers already enjoy the highest average pay in the world, and a rising, increasingly skilled global middle class charges lower prices for labor. Technology's growing role in all kinds of workplaces only makes it more critical for people to develop skills that set them apart.

"If the skills you've got to sell are the same skills that someone in a lot of other countries have to sell and those other countries have lower wages," said Schulhofer-Wohl, "it's going to be tough for you to get a raise."

There's not always a payoff to the step that is most often perceived as the ticket to higher wages: more education.

When Minneapolis lawyer Joely Macheel couldn't find a good-paying job a decade ago, she thought an MBA would help and enrolled in a graduate business program at the University of St. Thomas.

"It gets really exhausting to realize that so much time and energy has gone into something so worthless," she said.

She is among the hundreds of lawyers in the Twin Cities working on temporary contracts reviewing documents in big corporate cases.

The work is tedious and unreliable, she said. Projects end without warning, and typical hourly pay has actually dropped from about $26 per hour to $22 per hour in the past five years.

Each morning her first move is to check her phone to see if she still has a job. Her last contract ended suddenly at the beginning of December and she didn't find work again for a month.

As time between contracts added up, Macheel earned only about $30,000 in 2014.

Holzschuh, the truck driver, is also an artist who paints oil cityscapes. He lives east of Lake Harriet in Minneapolis and drops in on Golden Leaf, the decades-old cigar shop on Lake Street. Still, as he prepared to spend a January night in the back of a semi cab on the North Shore, he couldn't shake the sense that the economy isn't working for normal people, for blue-collar people.

A generation ago, he says, his dad worked at 3M and never had to work overtime. Holzschuh recently started driving a truck on Saturdays to cover his bills. "I'm up to six days a week now," he said. "It's to make sure I make the money to survive."

The same forces that have weighed down wages also have driven down the cost of key household goods.

Since 1973, the number of hours the average factory laborer must work to afford a washing machine, dishwasher or dryer has fallen by more than half for each good, according to analysis by Mark Perry, an economist at the University of Michigan-Flint.

Meanwhile, some companies are raising wages for rank-and-file workers, for a mix of altruistic and business reasons.

Retailers such as Trader Joe's, Costco, QuikTrip and the Spanish grocery store Mercadona also have raised pay for their workers.

In the Twin Cities, Punch Neapolitan Pizza raised its wage floor in 2013 to $10 an hour, and increased pay for pizza chefs, managers and general managers, a move that brought attention from the White House.

"We'll always be ahead of what the standard minimum wage is," John Puckett, the firm's co-owner, said last week.

The pizza joint has nine locations now, with 300 employees. Puckett still views raising wages as a long-term investment in the people who do the company's work, even though the decision eroded the firm's profit by $3 million.

"At Punch we talk about a triangle — profit, people and quality," Puckett said. "They've all got to be balanced."

"I don't know if I see a groundswell," he said. "But there's definitely leaders out there."

In nearly two decades of working in warehouses for various companies, Mark Pilman's pay hasn't risen.

The 36-year-old in recent years mostly worked through staffing agencies, and he started a job last week that pays $10.75 per hour. "It's a job, but I feel I'm worth more than $10.75 an hour," Pilman said.

Firms don't have to pay more because there are plenty of workers to choose from, he said.

"Companies don't want to pay for health insurance. They use you until they don't need you any more. And then they get rid of you," he said.

He and his fiancée have two sons, ages 2 and 7, and they live in an apartment in Coon Rapids. They plan to get married next month. He's interviewing for a job drawing blueprints.

If Pilman can get this job at an architecture firm, it would be a big boost. They want to buy a house for more space.

"I never got this far," Pilman said. "So we'll see what happens."

Adam Belz • 612-673-4405 Twitter: @adambelz