Why the biggest wage boom is blue collar workers

Businesses are in desperate need of workers across the country as economic reopening hits a tight labor market, but the boom in manual labor wage growth predates the pandemic.

Donna Kauffman, part owner of a landscaping design and build company in Colleyville, Texas, said a tight job market pushed her starting salary to $ 13.75 an hour, compared to lower wages from previous years.

Economic forecasters like Gary Shilling have observed an upward trend in blue-collar and manual service wages over the past several years, rising at a faster rate than white-collar job wages and reversing a trend that had been in the making. up over the past 30 years, according to data from the US Bureau of Labor Statistics.

“In general, at the blue collar level, you’re probably going to see higher real incomes,” Shilling recently told CNBC.

Shilling says “labor share” – the amount of GDP paid out in wages, salaries and benefits – which has been in decline for decades tends to increase, while the “share of capital” – the amount of national income from invested capital – tends to decline.

For workers in blue-collar industries such as construction, transportation, and manufacturing, and workers in manual service industries, including food service, recreation, hospitality, and beauty and health services, they have experienced the largest increase in wages in recent years. These salaries continue to rise after the pandemic.

A “Now Hiring” sign is displayed in the drive-thru of a McDonald’s restaurant on July 7, 2021 in San Rafael, California.

Justin Sullivan | Getty Images

The economy will depend on the reopening of manual jobs, according to Gad Levanon, director of the Conference Board’s Labor Market Institute, and the recent wage increase is due to the supply constraint of workers in these industries, as the country continues to face the repercussions of the ongoing pandemic.

The June non-farm payroll report showed an increase in average hourly wages across all industries, with an increase of 343,000 jobs in leisure and hospitality, more than half of which are restaurant workers. But employment in areas such as construction, transportation and manufacturing remained weak.

Levanon says it takes longer to find workers for these industries, despite rising wages, as these positions are typically filled by workers of lower socioeconomic status, who continue to be affected by the pandemic. These jobs require face-to-face interaction and hands-on skills that present potential risks to workers’ health, and many of these workers will not or be unable to return to work due to factors such as inaccessibility to work. child care services and continued federal unemployment benefits.

The discussion of why workers do not return to work remains hotly contested. Some say unemployment benefits deter workers, others say benefits play no role. Some say increasing vaccination rates will encourage workers to come back, but others say the risks are still high among vulnerable populations.

US Bureau of Labor Statistics

Some experts believe wage gains are here to stay, and it will be up to companies to offset the cost of wages as more workers return.

“America is first and foremost a service economy,” said Daniel Zhao, senior economist at Glassdoor. “So as the economy reopens, I expect to see increased demand for in-person services and this is contributing to the future boom in service roles and work. “

Sportswear company Under Armor is raising its minimum hourly wage for its retail and distribution workers from $ 10 to $ 15, while restaurants like McDonald’s and Chipotle are increasing their wages, and in April, the The White House has risen the minimum wage to $ 15 for federal contractors, including jobs for construction workers and mechanics.

Zhao says that when companies like McDonald’s and Chipotle raise their minimum wages, it means they perceive labor shortages and wage inflation as long-term problems.

“If they saw this as a temporary shortage in times of a pandemic, they would be content with one-off bonuses or hiring bonuses,” Zhao said. “But the fact that they are raising wages indicates that there are those employers who think the challenges of finding workers will last a long time.”

Workers willing to do falling manual labor

While every industry is currently suffering from workforce constraints, Kauffman said she has seen a steady decline in the number of workers willing to do hands-on work over the past 20 years.

Forty-four percent of businesses currently have openings for skilled workers, according to a june survey of the National Federation of Independent Businesses, and 66% of construction companies said they did not have enough skilled or skilled workers to hire.

One of the reasons workers don’t return to these jobs quickly is because they have bargaining power, says Gregory Daco, chief US economist at Oxford Economics. Employers must continue to meet higher wage requirements and employment conditions in order to attract these workers again.

A member of Ironworkers Local 7 installs steel beams on a high-rise building under construction during a summer heat wave in Boston, Massachusetts, June 30, 2021.

Brian Snyder | Reuters

The labor market for manual jobs has shrunk compared to the years before the pandemic started, Levanon says, as older generations retire and there are fewer people to fill those jobs. . This trend will continue in the years to come.

“The baby boomers who are retiring are less educated people who take on these blue collar and manual service jobs,” Levanon said. “And most of the younger generation that replaces them are more educated and less willing to work in these types of jobs.”

Kauffman said his landscaping company used to hire young adults, either high school students or young adults who didn’t go on to college, but as they went along. As high schools in her area began to attract more students and shut down agricultural education programs, she lost potential workers.

Daco says that while the desire of workers to perform these tasks is an issue, there are more direct reasons for the labor shortage and wage gains in blue collar and manual service jobs. There are enough people, on average, to fill those jobs, he says, looking at the 6.4 million people who are not currently working but would like a job, according to the June non-farm payroll report.

Skills gaps and the lack of localized jobs where workers live contribute to hiring difficulties.

“You have workers, but they might not be in the right place at the right time,” Daco said. “You may have rural areas that need people to work in the service, recreation or hospitality industry, but fewer people want to live there.”

Infrastructure spending can drive up wages

As debate continues in Congress and the White House over a federal spending and infrastructure bill, bipartisan support for strengthening physical infrastructure across the country, including road additions and extensions , bridges and highways, is expected to maintain high demand for the labor and wages of blue-collar workers. pressure on employers.

Details of any specific plan passed by Congress are critical, but Levanon says companies will continue to face extremely difficult recruiting hurdles for construction workers and manual workers.

As federal spending plans become clearer, Daco expects increased pressure to fill these jobs, pushing up wages, but not suddenly. He predicts a more gradual increase that will occur around mid-2022, as infrastructure plans become reality. And while current wages are a starting point for the future, he doesn’t see it as the starting point of a prolonged spike in the blue-collar wage boom.

“I don’t think this is the start of a wage inflation spiral, as wages will continue to rise at the same rate as they have been indefinitely,” he said.

CNBC’s MacKenzie Sigalos contributed to this report

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