Why the largest job wage growth post-pandemic is blue collar

Businesses across the country are in dire need of workers as economic reopening collides with a tight labor market, but the boom in wage growth for manual workers is ahead of the pandemic.

Donna Kauffman, co-owner of a landscaping and construction company in Colleyville, Texas, said a tight labor market had raised her starting wage to $ 13.75 an hour, compared to lower wages in previous years.

Economic forecasters like Gary Shilling have seen an upward trend in wages for manual workers and manual services in recent years, growing faster than white collar wages and a trend reversal that has persisted for the past 30 years, according to the US Bureau of Labor Statistics.

“In general, at the worker level, you’re likely to see higher real incomes,” Shilling recently told CNBC.

Schilling says “work share” – the amount of GDP that is paid out in wages, salaries and benefits – what was in decline has been trending upwards for decades, while the “capital share” – the amount of national income from invested capital – is trending downwards.

For workers in labor industries such as construction, transportation and manufacturing, as well as workers in manual service sectors such as hospitality, leisure, hospitality, and beauty and health services, they have seen the highest wage leaps in recent years. These wages continue to rise after the pandemic.

On July 7, 2021, in San Rafael, California, a sign reading “Now Hiring” was posted in the drive way of a McDonald’s restaurant.

Justin Sullivan | Getty Images

Gad Levanon, head of the Labor Institute at the Conference Board, said the economy will depend on the reopening of manual jobs and the recent wage hike is due to labor shortages in these industries as the country continues to grapple with the aftermath of the ongoing pandemic.

The June Non-Agricultural Payroll Report showed a rise Average hourly wages in all industries, with employment growth of 343,000 in leisure and hospitality professions, more than half of which are in the hospitality industry. But employment in areas such as construction, transportation and manufacturing remained low.

Levanon says that despite the rise in wages, it is taking longer to find workers in these industries as these positions are usually filled with workers from lower socioeconomic status who are still affected by the pandemic. These jobs require personal interaction and practical skills that pose potential health risks to workers, and many of these workers will either not return to their jobs or will not be able to return to work due to factors such as lack of access to childcare and continued state unemployment benefits.

The discussion about why workers do not return to work remains highly controversial. Some say unemployment benefits deter workers, others say Advantages don’t matter. Some say rising vaccination rates will encourage workers to come back, but others say the risks for vulnerable populations are still high.

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US Bureau of Labor Statistics

Some experts consider the wage increases to be here to stayand it is up to companies to compensate for labor costs when more workers return.

“America is first and foremost a service economy,” said Daniel Zhao, Senior Economist at Glassdoor. “So with the economy reopening, I expect greater demand for personal services, and this will add to the coming boom in service roles and work.”

Sportswear company Under armor increases his Minimum hourly wage for its retail and sales reps from $ 10-15, while restaurants like MC Donalds and Chipotle are increase their wages, and in April the White house increased the minimum wage to $ 15 for government contractors, including jobs for construction workers and mechanics.

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

“If they only perceived this as a temporary pandemic lack of time, they would only be relying on one-time bonuses or recruitment bonuses,” Zhao said. “But the fact that they are raising wages shows that there are employers who believe the recruitment challenges will continue for a long time.”

Workers willing to do manual work are falling

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

44 percent of the companies currently have vacancies for skilled workers, see above a June poll by the National Federation of Independent Business, and 66% of construction companies said they were not hiring enough skilled or skilled workers.

One reason workers aren’t returning to these jobs quickly is because of their bargaining power, says Gregory Daco, chief US economist at Oxford Economics. Employers must continue to meet higher wage and employment requirements in order to attract this workforce back.

A member of the Ironworkers Local 7 union installs steel beams on a skyscraper under construction during a summer heatwave in Boston, Massachusetts on June 30, 2021.

Brian Snyder | Reuters

The labor market for manual activities has been shrinking since the years leading up to the pandemic, according to Levanon, as older generations retire and there are fewer people doing these jobs. This trend will continue in the years to come.

“Retired baby boomers are people with lower education who do these worker and manual service jobs,” Levanon said. “And the majority of the younger generation it replaces are better educated and less willing to work in such professions.”

Kauffman said her landscaping company used to hire young adults, either high school students or out-of-college young adults, but gradually as high schools in her area started pushing college for more students and ending agricultural education programs, she has potential workers lost.

Daco says that while workers’ desire to perform these roles is an issue, there are more direct reasons for labor shortages and wage increases in both manual and manual service occupations. On average, there are enough people to do these jobs, he says, given the 6.4 million people who are not currently working but want a job, according to the June payroll report.

Skills shortages and job shortages in the place of residence of workers contribute to recruitment difficulties.

“They have workers, but they may not be in the right place at the right time,” said Daco. “Perhaps there are rural areas where people have to work in services, leisure or hospitality, but fewer people want to live there.”

Infrastructure spending can drive wages higher

While the debate in Congress and the White House over a draft federal spending and infrastructure bill continues, bipartisan support for strengthening physical infrastructure across the country, including adding and expanding roads, bridges, and highways, should meet the demand for workers and wages keep high pressure on employers.

The details of any specific plan passed by Congress are crucial, but Levanon says companies will continue to face extremely difficult recruitment barriers for construction workers and manual workers.

As federal spending plans become clearer, Daco expects increased pressure to fill these positions, which will drive wages higher, but not suddenly. He predicts a more gradual increase towards mid-2022 when infrastructure plans become a reality. And while current wages represent a starting point for the future, he does not see this as a starting point for a sustained surge in the wage boom for workers.

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

—MacKenzie Sigalos of CNBC contributed to this report

McDonald’s minimal wage increase and the quick meals franchise future

Employees work at the counter of a McDonald’s restaurant in the company’s new corporate headquarters on June 4, 2018 in Chicago, Illinois.

Scott Olson | Getty Images News | Getty Images

For Tom Locke, his turning point in employee wages came back in March during a conversation with a tired store manager, Heidi, in Coventry Township outside Akron, Ohio.

Beginning of the week that MC Donalds The location she ran for his family business, TomTreyCo, had a record-breaking $ 18,000 in sales in a single day, but when he spoke to her at a booth, Locke found that despite her decades of dedication to his business, there was a staff shortage at the end of the Covid-19 pandemic have really taken their toll.

She described working a 12-hour shift, sleeping in her car for three hours instead of driving home for half an hour, followed by another full day on her feet. “I could see the stress on Heidi’s face,” Locke recently recalled. So he decided to make a change to the 45 McDonald’s locations that are part of his franchise business in cities in Pennsylvania, West Virginia, and northeast Ohio – he raised workers’ wages.

The youngest employees would make at least $ 13 an hour, and far more than what other local competitors offer for managers who would move up to $ 20 an hour.

“We were in a pretty strong financial position,” said Locke of the April decision, following consultation with his executive team and a thorough review of the models to study the cost and margin implications. “I felt if at any point we could do this to raise the salaries of all of our employees, it would be now.” he said.

Fast food payment under pressure

Fast food wage levels have been scrutinized over the past decade with the help of work-friendly policymakers and well-organized stakeholders like Fight for 15, who advocate a minimum wage of $ 15 an hour.

McDonald’s is perhaps more at the center of this criticism and controversy than any other brand, although its franchise model means that the vast majority of restaurant locations are actually operated by independent franchisees like Locke’s TomTreyCo, rather than the franchisor – McDonald’s itself. But thanks to the deeply intertwined relationship between the franchisor and franchisee, a decision to increase wages on either side of the franchise equation can have complex implications.

In May, just months after other heated disputes with franchisees over study programs and the payment of technology fees, McDonald’s announced that workers at McDonald’s 650 company-owned locations will receive an average pay increase of 10% by the end of June – entry-level employees will ever Earn $ 11-17 an hour by location, and Shift Supervisors will make $ 15-20 an hour. The company says the average wage for employees in in-house restaurants will be $ 15 an hour through 2024.

While the wage increases will only take effect in the locations that McDonald’s owns and operates, the company encouraged franchisees who run the roughly 13,000 other restaurants to do the same for their roughly 800,000 employees, causing anger and dismay among some franchise owners. The fast food giant sells 95% of its US restaurants.

What McDonald’s boss says about wages

McDonald’s is one of the restaurant chains emerging from the pandemic in a strong financial position, much like Chipotle did recently increased wages – and in this case the menu prices by 4%. And it has tried to financially support independent restaurant operators.

In one current interview at the CNBC Evolve Global Summitsaid Chris Kempczinski, McDonald’s CEO, the company’s decision to pump around $ 1 billion in liquidity into its system earlier this year after the worst of the pandemic ended – and in addition to several years of US balance sheet growth Part of an effort to turn the franchisee mindset away from worrying, “Will I be able to pay my mortgage or loan due this month? … be much more aggressive really.”

While not wanting to comment on an increased federal minimum wage, McDonald’s CEO said, “There’s no doubt that $ 7.25 is not what you should or have to pay to be competitive in the market today. … wages are rising because the economy is strong. “

Labor experts say McDonald’s move will put pressure on its franchisees.

“This will put a lot of public pressure on franchisees to do the same,” said Laura Padin, a senior labor advocate for the National Employment Law Project. “When this campaign started in 2011 or 2012,” Padin said of “Fight for 15,” a minimum wage of $ 15 was “intended as that kind of ‘pie in heaven’ target.”

The latest announcement from McDonald’s is proof of its effectiveness, Padin said. “The fact that companies are taking this initiative themselves only shows how much the movement has changed the narrative of what an acceptable minimum wage should be,” she said.

Franchise industry is pushing back

The franchise industry has made its position clear – minimum and maximum wages should be set by individual restaurant operators. “Franchisees are best placed to make wage decisions in their local communities,” said Matt Hauer, senior vice president of government relations for the International Franchise Association. He highlighted the cost differences between high-priced city zip codes and more rural locations.

The current focus on wage levels was due to a “union-driven campaign” to achieve certain organizational or political results by persuading the public that the franchise business model is in fact an enterprise model. In the public eye, he says, this is “to make a company like McDonald’s or Dunkin Donuts or Hilton Hotels one company, not a collection of many small companies doing business under a common brand.”

On July 7, 2021, in San Rafael, Calif., A sign reading “Now Hiring” is posted in the driveway of a McDonald’s restaurant.

Justin Sullivan | Getty Images

McDonald’s corporate view puts franchisees in the crosshairs of a battle that is being fought with massive competitors in a broader, low-wage landscape.

“I think what happens is you see that having a great economy is very helpful in increasing employee wages. And I think a lot of the changes that come from the wage perspective are because companies like McDonald’s have to compete for the best. ” Talent, “Kempczinski said.” If you have Walmart and Amazon, Target … all going to $ 15, that’s certainly a talent pool to compete with. “

How McDonald’s employees feel

Among workers advocating higher wages, a distinction between McDonald’s companies and franchisees can seem semantic.

“We don’t care if we work in a franchise or corporate business or not,” says Cristian Cardona, a 21-year-old who started working at a McDonald’s-operated restaurant in Orlando three years ago. “We all wear McDonald’s uniforms and we all earn a living wage.”

Cardona was first employed at $ 9.25 an hour, just a dollar more than the Florida minimum wage at the time. Then after a year he became a manager and rose to $ 11 before McDonald’s recently raised it to $ 13. “If McDonald’s companies can control how franchisees make and market their Big Macs, I know they can figure out how to pay every single worker a living wage of at least $ 15.” he said.

For Locke, the Ohio franchisee, adopting higher wages was ultimately more of a corporate than a moral choice. “I will be honest with you,” he said in a recent telephone interview. “If it wasn’t for a huge labor shortage, we might not have taken the action.”

We were just a virtual hamster on the hamster wheel: we weren’t going anywhere. The hardest part is hiring, retaining, and training great people.

Tom Locke, McDonald’s franchisee

At the beginning of the year, Locke had reduced his menu choices to improve his margins, but he was still grappling with staffing shortages. Around 250 employees would leave every month and just as many would have to be trained. In the catering industry, sales of over 100% are common.

“We were just a virtual hamster on the hamster wheel, we weren’t going anywhere,” he says. “The hardest part is hiring, retaining and training great people.”

But since his raise, which went ahead regardless of McDonald’s announcement, the following month, retention rates have skyrocketed.

To compensate for the higher costs, he has raised prices slightly, but believes that customers “expected” it, as his team has publicly communicated the higher wages for its workers. “It’s a long-term look at business as opposed to a very short-term look at business,” Locke said. “I think it’s a much better business model.”

This is an approach that shows more consistency than friction between McDonald’s companies and independent owners, and reflects the view of the McDonald’s CEO.

“We’re going to be transparent … We’re going to make absolutely long-term decisions, so let’s not intervene here and now for the short term,” Kempczinski told CNBC.