Money Mondays: Will Black Workers Benefit From New Wage Growth?

Tom: You are joining us this morning with some news on wages.

Mellody: I am, Tom. Last week, the labor department released the official numbers on wages and salary information from the first quarter of 2015, and it looks like things might be looking up. Wages and salaries rose at a faster pace in the first three months of 2015 than in the fourth quarter of 2014, signaling workers are having some success seeking higher pay as the labor market strengthens. Beyond this, the growth of wages and salaries in Q1 also outperformed expectations.

The 0.7 percent advance in pay last quarter followed a 0.6 percent increase at the end of 2014, according to the Labor Department. Private wages, which exclude those government workers, rose 2.8 percent in the last year, the biggest gain since the third quarter of 2008. All of this is good news for workers.

Tom: Always good to hear that wages are going up. What is causing this, Mellody?

 Mellody: We have been waiting for this to happen for some time, Tom. As the economy recovered from the 2008 financial crisis, we have been expecting employers to boost worker pay, but it has been much slower than anticipated. Better numbers on paystubs have been the missing piece of the labor market recovery, even as the number of job openings hit a 14-year high and the unemployment rate has fallen. However, the burden has been shifting to employers in recent months. As the labor market begins to cross the threshold of full structural employment, workers gain a bargaining advantage and employers come under greater pressure to compensate workers more.

Tom: We have heard a lot about inequality and social mobility in Black communities over the past year. What is the state of wages for Black America?

 Mellody: Black americans see very clear wage disadvantages in comparison to white Americans. We all know about the difference between men and women – women make 78 cents on every dollar – but it is rare to hear about the wage gap between racial groups. However, this much is clear: the gap exists, even when controlling for education and job type.

According to a report from 2010, black men in America earned 74.5 percent of a typical white man’s wage; Black women earned 69.6 percent. The report, from researchers at Harvard, Princeton and University of Chicago showed that racial discrimination accounts for one-third of the wage difference. But it also shows that Black Americans have a 7 percent lower reservation wage – the lowest wage that a worker will take – than their white counterparts at a comparable job that requires comparable skills.

And that was 2010. The economic downturn had a disproportionate impact on the wages of blacks, and in the intervening years inflation-adjusted weekly wages have continued to decline. From 2009 to 2014, the weekly wages for full-time Black workers have fallen 1.19 percent (versus 3.8 percent for white workers), and 9.42 percent for part-time workers (versus .22 percent for white workers.)

Mellody: i think we can agree that any wage growth is a good thing. And states and municipalities – along with companies – are feeling the pressure to raise wages to address some of these problems of inequality. We have seen some movement on this front already – McDonald’s has raised wages, as has Wal-mart. A number of states have as well. However, it will certainly take significant growth to close the wage gaps that we have seen between races. And, in terms of our communities, wages are also critical, since consumer spending accounts for 70 percent of the economy. That will take more than a growing economy.

Tom: There is a lot more work ahead of us, but it looks like some good news is on the way.  

Mellody: Hopefully we are about to turn the corner, Tom. Have a good week.

Tom: You too, Mellody!

Mellody is President of Ariel investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts.  Additionally, she is a regular financial contributor and analyst for CBS News.

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