Low-Wage Workers: Losing Leverage for Getting Better Pay and Benefits

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By George iskef

The party for low-wage workers, where they enjoyed bigger salaries and better perks, may be coming to an end. According to the Wall Street Journal, the leverage of low-wage workers to demand higher wages and incentives is diminishing due to high interest rates and burdensome inflation.

Key Take-Aways:

  • High demand for low-paying jobs in recent years gave low-wage workers significant leverage for better pay and perks.
  • In a post-post-pandemic world, wage gains are slowing, the labor market is tightening, and perks are no longer as prevalent.
  • The Federal Reserve Bank of Atlanta reported that wage increases for workers in the bottom quarter of wage distribution decreased from 7.2% in January to 5.9% in October.
  • Average hourly wages in the leisure and hospitality industry, where many low-wage workers are employed, increased by 7% at the start of 2023 but dropped to 4.5% by October.
  • Stimulus checks, unemployment payments, and pauses on student loans and rent during the pandemic provided additional support for low-wage workers, but these benefits are fading.
  • McDonald’s and other companies have reported a decrease in traffic from low-income consumers, suggesting a slowdown in consumer spending.
  • While consumer spending has continued to increase, some economists fear that the holiday season may bring a pullback in spending as prices remain high.

The Rise of Low-Wage Workers during the COVID-19 Recovery

Following the decline in COVID-19 infection rates and the reopening of the US economy, consumers eagerly sought to return to normalcy by indulging in activities such as dining out and traveling. This surge in demand created a need for workers in the service, hospitality, and caregiving industries, leading to competitive salaries and incentives for low-wage workers. Signs of recovery and the desire to meet consumer demands resulted in some of the largest pay gains for low-wage workers since before the pandemic.

A Shift in Wage Gains and Labor Market Conditions

However, as the post-post-pandemic world settles in, the boost in wage gains for low-wage workers is slowing down. Reports show that the average worker in the bottom quarter of wage distribution received a 7.2% raise in January but only a 5.9% increase in October, according to the Federal Reserve Bank of Atlanta. Similarly, hourly wages in the leisure and hospitality industry, which experienced significant growth, went up by 7% year-over-year at the start of 2023. However, by October, the increase had dropped to 4.5%, as reported by the Labor Department. These numbers indicate a slowdown in wage growth for low-wage workers, suggesting that their leverage for higher salaries may be diminishing.

The Erosion of Pandemic Support and Excess Savings

Low-wage workers also benefited from various pandemic-related support measures, such as stimulus checks, unemployment payments, and pauses on student loans and rent. These measures provided financial relief and contributed to the accumulation of over $2 trillion in excess savings by Americans. However, as the post-pandemic reality sets in, these benefits are waning. Student-debt payments have resumed, and the excess savings are likely depleted, as highlighted in a study by the Federal Reserve Bank of San Francisco. The erosion of these support measures adds further pressure to the financial situation of low-wage workers.

Signs of a Slowdown in Consumer Spending

The impact of diminishing leverage for low-wage workers is evident in the slowdown of consumer spending. McDonald’s CEO Chris Kempczinski noted a decline in traffic from low-income consumers in the third quarter compared to the previous year. Furthermore, retailers like Footlocker, Gap, and Old Navy, along with some budget airlines, have also reported a pullback in consumer spending. These observations indicate that consumers may be tightening their belts due to the changing economic conditions.

Current Consumer Spending Trends

While there are signs of a slowdown in consumer spending, the US Department of Commerce reported a 0.7% acceleration in consumer spending in September. The increase was driven by expenditures on food and beverages, new car purchases, and travel. Despite this growth, some economists remain cautious. With high prices persisting, there is a concern that the approaching holiday season may coincide with a pullback in consumer spending, further impacting low-wage workers and the overall economy.

The Future for Low-Wage Workers

The decline in leverage for low-wage workers raises concerns about their financial well-being and the broader implications for the economy. If wages continue to stagnate or decrease for these workers, it could exacerbate income inequality and hinder economic growth. Additionally, reduced consumer spending from low-wage workers may have ripple effects on various industries that rely on their patronage. The ability to find a balance between affordability for consumers and sustainable wages for low-wage workers will be crucial in shaping a more equitable and resilient economy.

In conclusion, the party may be coming to an end for low-wage workers as their leverage for higher pay and perks diminishes in a world marked by high interest rates and burdensome inflation. The decrease in wage gains, fading pandemic support, and signs of a slowdown in consumer spending all suggest a challenging future for low-wage workers. It remains to be seen how these factors will shape the trajectory of the economy and the livelihoods of those in low-paying jobs.