Low-wage workers have benefited enormously from the economic expansion and the extremely low unemployment rate. This also means that the end of the expansion will mean the end of the upward turn for low-wage workers. This could serve as an extra incentive to the Federal Reserve to keep interest rates low.
According to The Wall Street Journal, the Fed’s semiannual monetary policy report revealed that between 2008 and 2010, the share of people aged 25 to 54 with a college degree who were employed dropped 2.5 percentage points. Afterwards, a recovery ensued and last year, it was almost at the pre recession peak.
As for the wages of workers who only have high school degrees or less, they fell much more quickly when compared to college-educated workers, but rose more quickly as well. By last year, wages in this area had completely recovered.
According to the Fed, this has been the same in every business cycle since at least 1980. New data from the Fed may explain this phenomenon: throughout the cycle, employers and workers alter their recruitment behavior.
Alicia Sasser Modestino of Northeastern University and her two co-authors found in a 2016 study that when unemployment skyrocketed from 2007 to 2010, the percentage of job postings which required a bachelor's degree on Burning Glass, which is a website that aggregates job postings, rose over 10 percentage points. Over the next four years, the share fell. The same pattern happened with postings that required at least five years of experience.
Hiring criteria simply became more intense as unemployment rose, and became more lax as it fell.
During a Fed conference last month, Pat Dujakovich, the president of the Greater Kansas City AFL-CIO, explained that many workers are finally finding a place in the economy because employers are now waiving many hiring criteria such as minimum experience.
Fed Chairman Jerome Powell said, “It’s one of the reasons why we think it’s so important to sustain the expansion, because we really are benefiting groups that haven’t seen this kind of prosperity in a long time.”
Read the full story here.