HomePoliticsYoung workers rake in biggest wage gains in tight labor market

Young workers rake in biggest wage gains in tight labor market

Their pay progress reflects employers’ strong demand for labor as the economy recovers from the pandemic’s effects, particularly for many service jobs, such as at restaurants and retail stores, that tend to employ younger workers.

Median hourly wages for workers age 16 to 24 were 10.6% higher in January than a year earlier, far exceeding the 4% overall gain for all workers, according to Atlanta Federal Reserve Bank data.

While young workers typically log faster wage growth because they start from a lower base, the 12-month rate is at its highest in the past 25 years, according to the Atlanta Fed. By comparison, consumer prices rose 7.5% in January from a year earlier, the Labor Department reported.

While workers of all ages are experiencing wage growth, the younger ones are benefiting from the intense competition among employers struggling to fill traditionally low-wage, low-skilled jobs. In 2020, the last full year with available data, 48% of all workers making the federal minimum wage of $7.25 an hour or less were under 25 years old.

According to Labor Department data, 46% of hotels and restaurants and 33% of retail businesses say they have raised wages because of the pandemic and related worker shortages.

Separately, longer-term demographic trends mean there are fewer of these young workers now than a decade ago. The U.S. population today age 16 to 24—part of so-called Generation Z—is about 3% smaller than it was 10 years ago, when their predecessors—the youngest millennials—fell into this age range.

Meanwhile, a smaller share of teens and young adults are competing against one another for jobs than two decades ago. The percentage of adults age 20 to 24 who were working or looking for work fell to 72.1% in February 2020 from 77.2% in February 2000. For those age 16 to 19, the rate fell to 32.1% from 49% in the same period.

Employers also have added incentives such as college tuition assistance or signing bonuses to win their bidding wars.

Alto, a ride-sharing startup, has tried to sweeten the deal for a job that often goes to young workers: new car washers and detailers get a $400 signing bonus if they stay for more than 30 days.

“Car-washing can be a lot of moving, outdoors, in the summertime—we need to find the right demographic who can do that job,” said Winston Wright, Alto’s Houston general manager. Other incentives kick in later: After six months, employees can qualify for a 401(k) plan, and Alto tries to show young employees pathways to promotions to jobs like delivery supervisor.

“When someone can go somewhere else for 50 cents more and there’s not a lot of loyalty, it has paid dividends for us” to provide benefits and offer opportunities for advancement, Mr. Wright said.

At Craig Hospital in Englewood, Colo., a suburb of Denver, a new apprenticeship program pays high-school students $17.76 an hour to assist occupational, physical and speech therapists, filling a short-term need while training a future workforce. That minimum wage, set in October, isn’t just for apprentices: Employees throughout the hospital make that rate, including students working part time in areas such as food services, up from $15.34 in 2019.

Jacki Ibarra and Jose Luevano, both 17-year-old apprentices, are now considering careers in healthcare.

“Craig is my first actual workplace. Future me would like to work here as a registered nurse,” Ms. Ibarra said. She is interested in continuing with the apprenticeship program after high school because the hospital offers college tuition assistance.

Mr. Luevano said the pandemic has been difficult for his family financially and he “was looking to help out around the house and save some money for college.” Since joining the program, he has taken a particular interest in working with patients with brain injuries and wants to study neuroscience before returning to healthcare.

“We’ve experienced shortages on the clinical and nonclinical sides,” said Stacy Abel, Craig’s human-resources chief. “We understand that there are a lot of organizations and companies in the Denver area that are desperate for help as well, and we need to be competitive to get talent.”

Young workers also are benefiting from a tight labor market to start in higher-paying professional careers. That is a change from the 2007-2009 recession, when entry-level white-collar positions were in short supply.

The surge in retirements and job-switching among older workers has made employers more open to opportunities for younger workers, said Ron Hetrick, senior economist at Emsi Burning Glass, a labor-market analytics company. An additional 1.5 million people were retired from February 2020 to April 2021 than would have been retired if pre-pandemic trends had continued. That is what makes this economic recovery different from the one following the 2008 financial crisis.

“A 20-year-old who’s really sharp and says, ‘I can do this,’ can take on a professional role that has promotion potential instead of taking that part-time restaurant job,” Mr. Hetrick said.

Teresa Contreras, 22, a senior at North Park University in Chicago, recently accepted an underwriter position at Chubb Ltd., a global insurance company. She burnished her résumé by working part time at a different insurance company’s office during college and by earning her license.

“I didn’t want to get out of college and have to say, ‘What’s next?’ ” she said.

Historically, entering the labor force after economic upheaval can have long-term negative effects on a person’s earning potential, and some economists say it is too early to tell whether that will be the case following the pandemic.

College graduates who entered the job market during the recession of the early 1980s had wages that were 2.5% lower after 15 years than graduates who didn’t start out in a downturn, according to research by Lisa Kahn, a University of Rochester economist.

Some believe a similar dynamic will play out this time: “I think it is likely that we’ll see the same kind of wage scarring, and it may also be worse because education has been so disrupted,” said Martha Ross, a Brookings Institution senior fellow who researches workforce development.

But the workforce has changed significantly in the past decade-plus in ways that could support strong demand for younger workers. The pandemic accelerated the trend of having fewer workers supporting the U.S. population: In 2021, there were 2.7 workers paying into Social Security for every beneficiary. By 2035, there will be 2.3 covered workers per beneficiary, according to the Social Security Administration.

“The good news is your kids will never have to worry about getting a job,” Mr. Hetrick said.

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