US unemployment has declined more rapidly since late 2013 for workers with high school educations than for those with some college, and incomes for less-skilled and lower-paid employees have grown faster than for those near top of ladder: Goldman Sachs

Cindy Allen

May 20, 2014 (Bloomberg LP) – Life is looking up for Marco Ruiz, whose four months of unemployment ended in December when a landscaping company in Dallas hired him at $9.50 an hour, with small raises since then and a promotion two weeks ago.

“Things have gotten better,” said the 44-year-old, a maintenance supervisor at The Grounds Guys, which also added a part-time worker this year as sales are climbing. “This is a good job. I’m making $12 an hour.”

Five years into the economic recovery, better days are finally arriving at the bottom of the job market. Since late 2013, unemployment has declined more rapidly for workers with a high school education than those with some college, and incomes for less-skilled and lower-paid employees have grown faster than for those near the top of the ladder, according to government data analyzed by Goldman Sachs Group Inc.

“It looks like things are turning,” said Jan Hatzius, chief economist for Goldman Sachs in New York. The pickup is “looking a bit stronger for less skilled, lower paid workers. There’s been a little bit of the closing of the gap over the last year or so.”

The outperformance at the low end of the labor market, while helpful to the economy, hardly makes a dent in income inequality. The chasm between the richest 1 percent and remaining 99 percent is the widest since the 1920s, according to research by economists Emmanuel Saez of the University of California at Berkeley and Thomas Piketty of the Paris School of Economics. Nonetheless, economists at Goldman Sachs and JPMorgan Chase & Co. say the data on Americans at the low end of the wage and skills spectrum are looking more encouraging.

Education Levels

Unemployment among workers with a high school education or less fell to 6.3 percent in April, down about one percentage point from December, according to Labor Department data cited by Hatzius. In the same period, workers with at least some college saw a smaller drop, to 5.7 percent from 6.1 percent.

Average hourly earnings for production and nonsupervisory workers grew at a 2.3 percent year-over-year rate in April, compared with 1.4 percent in mid-2012, Labor Department figures show. Earnings for all workers, including higher-paid supervisory staff, has been hovering near a 2 percent pace since 2010.

“At the margin, the labor market has now made a bit more progress and that additional progress is helping people at the low end,” Hatzius said. Even so, that “doesn’t change the fact that there’s been a widening of the gap over a longer period.”

Earnings Ratio

Hatzius and JPMorgan’s Chief U.S. Economist Michael Feroli both cite improvement in a gauge that compares earnings of Americans at the 90th percentile -- whose pay exceeds that of 90 percent of their fellow workers -- with the bottom tenth. In a typical week in the first quarter of 2014, people at the 90th percentile made 5 times as much as people at the 10th percentile. That’s down from a record 5.3 times in late 2012.

Still, this so-called 90-10 ratio remains above a low of 4.4 in 2000, the earliest year for comparable data. While the ratio indicates that the lower end of the income scale is improving, it doesn’t show what’s happening to the very highly paid, the top 10 percent. The Labor Department doesn’t publish weekly earnings for that group.

“We may be seeing a turning point,” though, said Feroli. Wage disparity widens in bad times and shrinks as the business cycle improves, so it is reasonable to expect further narrowing, he said. Still, “these things don’t move quickly. It’s unlikely that dozens of years of unequal wage growth would completely reverse in a year or two.”

Talk of progress on inequality “sounds a bit hollow” right now, said Heidi Shierholz, an economist at the Washington- based Economic Policy Institute, which conducts research on the economic condition of low- and middle-income families. She said she’d like to wait for further evidence confirming gains for lower-income workers.

Slow Improvement

“The improvement in the job market remains agonizingly slow,” she said. “That’s what’s happening on Main Street, that’s the broad reality.”

Piketty’s new book on the rich-poor divide, “Capital in the Twenty-First Century,” has become popular in the U.S. for good reason, she said. Inequality is dominating President Barack Obama’s minimum-wage campaign, and Federal Reserve Chair Janet Yellen has called income disparity “one of the most disturbing trends facing the nation.”

While gains at the low end of the income and skills scale are a move in the right direction, “we have a long, long way to go,” said Harry Holzer, a professor of public policy at Georgetown University in Washington and former Labor Department chief economist. The nation’s unemployment rate, 6.3 percent in April, is still above its pre-recession level and wages overall are stagnating.

“If the labor market tightens up, you’ll see positive inequality effects,” he said. “So far, the pockets of improvement haven’t been big enough to move the numbers.”

Buffalo Wings

One American seeing better times is Jesus Ramirez, who was promoted in April to a shift leader at Buffalo Wings & Rings in Columbus, Ohio, after he trained kitchen staff for a new nearby location. A series of 25-cent raises over time have pushed him up to $11 an hour, from $8 in November 2012 when he was a helper preparing appetizers such as chicken nachos. A shortage of employees allows him to often work 50 hours a week.

Six years of experience at area food outlets and a network of friends came in handy when the high school graduate sought better job openings. He bought a used Mitsubishi Lancer for $3,000 in cash last year, lives with parents and four siblings, and does the 5 p.m. to 11 p.m. shift about three days a week at a Panda Express location to supplement earnings.

“I get tired by the end of the week but when I see the paycheck it’s all good,” said Ramirez, 21, whose goal is to eventually run his own place. “If you really want something, you’ve got to work for it. I make more money now, but who wouldn’t like to get more.”

Spending Impact

Faster employment and wage growth for those at the bottom, were it to have staying power, would help lift consumer spending, the biggest part of the economy.

“It is good news for the economy,” said Ellen Zentner, a senior economist at Morgan Stanley in New York. “One of our expectations for the consumer this year and next is that we get a broader contribution to spending across more income groups.”

That would be a change, she said, because “household spending over the last couple of years has been driven by what the top end of the income spectrum was doing.”

A pickup in the fortunes of the less advantaged, relative to those at the top, also helps to reinforce the argument that the job market has been weak mainly due to tepid economic growth rather than a skills mismatch. “It’s mostly macroeconomic factors,” according to Hatzius of Goldman Sachs.

“The idea that our labor-market problems are primarily driven by a lack of skills at the bottom end of the distribution just isn’t right,” he said. Hatzius studied 15 industries, 10 occupations, four educational attainment and six gender- and age- groups to find that “for the most part, the ups and downs look pretty symmetrical,” with a sharp deterioration for all groups during the 2007-2009 crisis and a gradual recovery since 2010.

Slack Remains

A rebound concentrated more at the low end means the job market can “keep growing a little longer” before labor shortages occur and overall wages accelerate, Hatzius said.

The central bank thus gets more room to keep interest rates near zero before it has to “take away the punch bowl,” Hatzius said. His view may resonate with Fed Chair Yellen, who on May 7 told Congress muted compensation gains signal “a substantial amount of slack remains in the labor market.”

Darryl Rogers, 31, has a little more money for everyday expenses since he found work in March at a Dunkin’ Donuts in Tampa, Florida, for $7.93 an hour. Rogers said he “struggled a lot” after his service with the Army ended in 2010. He endured bouts of homelessness and a long spell of unemployment, punctuated by two or three-month stints of low-paid jobs at employers including Wal-Mart Stores Inc.

“Finally I’m in a place where it’s decent. I have food on the table and a roof over my head,” he said. “It’s still tough, but I’m staying hopeful.”

“On a scale of one to 10 it felt like zero, but now I’m at 4.5.”

--With assistance from Chloe Whiteaker in Washington and Ilan Kolet in Ottawa.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net To contact the editors responsible for this story: Carlos Torres at ctorres2@bloomberg.net Mark Rohner, Gail DeGeorge

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