Americans’ wages rose 0.4 percent in November, the largest monthly gain in earnings since June 2013, according to the U.S. government’s knockout jobs report released Friday. November’s wage growth was double what economists had predict for the month.
The new report may suggest that small-business owners need to brace themselves for intense worker competition and raise their wages to compete with this surge in hiring and wages.
But not so fast. There's a silver lining—at least for employers (not so much workers): Wage growth has remained stubbornly sluggish overall during the job market’s recovery. Many economists think, despite the recent jobs report, that it remain slow until the unemployment rate falls quite a bit lower.
What’s going on?
Justin Lahart of The Wall Street Journal says stagnant wage growth in the United States has to do with who’s doing the hiring. The bulk of new jobs created in recent years has come from large companies—not small businesses and startups. When so many jobs are consolidated in the hands of large enterprises, wage competition falls.
It’s simple: Big companies that don’t face labor competition don’t have to raise their wages. In fact, wages have only risen 2 percent annually over the past couple years.
Lahart points to data that shows that startup activity has yet to recover to 1990s' levels. This has meant fewer people working for small businesses and more people working for large corporations. More startups haven’t been formed and grown into large companies because they still don’t have access to the loans and angel investments they need to do so.
Moreover, competition from large corporations in many communities has gotten more intense—forcing some mom-and-pops out of business.
“For a rough analogy, think of a town with a few hardware stores, a couple of appliance stores and a lumberyard,” Lahart writes. “Those businesses all, to some degree, compete for workers. But if a Home Depot opens and those other retailers close, people in the town will have fewer employment options and won’t be as able to demand higher wages as a result.”
Read more articles on hiring.
Photo: Getty Images