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The U.S. recovery isn't just creating McJobs: Erica Alini

What explains stagnating wages?

Photo credit: Getty Images

Photo credit: Getty Images

Average hourly earnings for Americans working in the private sector rose by two cents in October, according to the latest jobs report. Over the year, they’ve jumped a grand total of  52¢. In other words, 2013 will be perfectly in line with the trajectory we’ve seen since the end of the recession, whereby the nation’s hourly pay has risen by all of US$2 in four years. By comparison, Americans’ pay rose by $1.50 in just one year between 2006 and 2007, just before the recession. And hourly wages climbed a full 70¢ between early 2008 and early 2009, right in the midst of the downturn.

Since 70% of the American economy depends on domestic consumers and 70% of Canadian exports depend on the American economy, the fact that the “hard-working people of America” aren’t seeing any significant income hikes should be a concern in this country as well. So, why are U.S. wages stuck?

The answer is complicated — a cadre of economists have come up with different ones — and the trend predates the recession, really. But a fashionable explanation is that the recovery has been replacing decent-paying jobs in manufacturing and construction with low-wage McJobs at fast-food chains and Wal-work at big-box retail stores.

There might be a kernel of truth in that, but, I suspect, not much more than a kernel. Here’s a look at how many people, on net, work in “accommodation and food services” — where you’d find McDonald — and retail, which, naturally, includes the likes of Walmart.

McJobs - ThousandsAs you can see, the food and accommodation industry (yellow) has indeed performed rather well since the recession, recovering all the jobs lost and then some. You can’t really say the same of retail (red), though, which hasn’t even recouped all the positions shed in the downturn. In general, what stands out in the private service sector is “professional and business services” and “health and education.” The first (purple) obviously suffered a hemorrhage of jobs when the economy contracted, but it has also staged the strongest recovery and has surpassed its pre-recession peak. And health and education (grey) is the anomaly of this graph: It’s been heading up in a straight line since 2000 and didn’t even budge during as mayhem raged everywhere else in 2008-2009.

It’s pretty much the same picture when you look at how many Americans work in what industries as a share of the total working population. Here’s the chart, featuring manufacturing and construction as well — it’s not very user-friendly, but I explain everything below.

McJobs - FRED graph

Let’s start with construction jobs (gray): Before the recession they were almost 6% of all jobs; today they’re just above 4%. Manufacturing is the free-falling purple line that crosses the chart almost diagonally from the top left to the bottom right. The relative size of the sector shrunk even faster during the recession but it has since held steady, which is better than anything you can say about the previous decade. Where did those jobs go? The share of retail jobs (red) is, if anything, slightly lower. Food and accommodation rose from about 6.5% to 7.5% — a sizable increase but, again, not spectacular. The share of professionals staged a similar one-percentage-point gain, going from about 13% to almost 14% of all jobs. And health and education beats everyone, going from roughly 13% of jobs to 15% after the recession. There isn’t much here to suggest that minimum-wage gigs flipping burgers were able to absorb a sizable share of those who lost their jobs in construction and manufacturing.

As Kathleen Madigan, over at the Wall Street Journal, notes “private employment has risen 7%, and low-paying jobs have increased 6%. Looked at another way, low-paying jobs have a 34% share of all private jobs, but have accounted for only 29.6% of total hiring since 2010.”

What has been holding wages flat remains a bit of a mystery. But as the wonks work hard to solve the puzzle, you can take comfort in the fact that America is still creating lots of decent, solid jobs.

Erica Alini is a reporter based in Cambridge, Mass., and a regular contributor to, where she covers the U.S. economy.

Follow @ealini