When one of Neil Abramson’s best employees told him she was looking for a job that paid more, he knew he couldn’t afford to lose her. Her departure from his Leominster consignment store would have left him short-staffed, and her customer-service experience and can-do attitude aren’t easy to find. So Abramson bumped up her wages by $2 an hour, to $18 — a leap he wouldn’t have made in the past.
With companies desperate to hire and hold on to workers, they are increasing pay, especially at the entry level. Over the past few years, in fact, something unusual has been happening for those making the lowest wages: Their earnings are climbing at a faster rate than for those in more lucrative jobs.
Abramson is paying his ECI Stores employees roughly $3 more an hour than he was two years ago, and now offers a retirement plan. The bump is not just keeping his businesses staffed, it’s attracting better employees — including some who were burned out from stressful jobs in education and health care. “As a business surviving the pandemic,” he said, “we are more adaptable now.”
In the past year, the lowest-paid workers have seen a roughly 8 percent bump in earnings, according to a new analysis by Arindrajit Dube, an economist at the University of Massachusetts Amherst. While 5.5 percent of that gain was eaten up by inflation, those at the bottom third of the pay scale (adjusting for occupation and worker demographics) have seen their earnings go up, on average, while in the top 70 percent, earnings have gone down.
Over the summer, for example, those making $15 an hour saw their pay rise by approximately 1 percent, accounting for inflation, while earnings dropped by .2 percent for those making $30 an hour.
“That’s striking,” Dube said, “because that’s pretty much gone against the grain of the last 40 years where we have seen wage growth be exactly the opposite pattern.”
And it’s especially remarkable that it’s happening during a pandemic that’s wreaked havoc on many of the very employers that are raising wages, he said, including those in retail, hospitality, and transportation. Workers have been quitting their jobs at a record rate, especially in lower-paying industries, as safety and child care concerns linger. Early retirements are up, and the number of immigrant workers is down. Some people are also rethinking their priorities.
“There’s a sense in which people who used to be in particularly bad jobs, if you will, are less likely to want to stay there, and that’s creating this pressure,” he said.
Overall, real average hourly earnings, which account for inflation, have decreased 1.2 percent over the past year, according to the Bureau of Labor Statistics. But wage growth “dramatically accelerated” in the past six to eight months, according to a Conference Board survey released Wednesday. And it is expected to keep climbing.
Employers are expected to raise wages 3.9 percent next year, the highest rate in 14 years, the nonprofit business group reported. This jump is being driven by higher pay for new hires — especially those under the age of 25 and workers who switched jobs — and inflation, which has been increasing at the highest rate in nearly 30 years. Continued labor shortages will likely drive wage growth above 4 percent through next year, the board said.
Some of the increases on the low end of the earnings scale are because of the rising minimum wage. In Massachusetts, the $13.50 minimum is going to $14.25 on Jan. 1, and $15 in 2023. Still, roughly half of American workers make less than $20 an hour, according to the nonprofit Living Wage for US, but 80 percent of the population lives in a place where the wage needed to afford housing, health care, child care, and other expenses to support families is more than that.
In Massachusetts, 92 percent of the population resides in a county where a family of four needs an annual household income of at least $100,000 to live with a “basic level of decency,” according to Living Wage for US, which just launched a certification program for employers that pay a living wage. But less than 44 percent of households in the state make that much.
Higher pay for those who need it most could be a silver lining of the pandemic, which has taken a brutal toll on many of the immigrants and people of color in lower-wage jobs — provided it goes up enough, said Zeynep Ton, a professor at the MIT Sloan School of Management and cofounder of the Good Jobs Institute.
“Wages are sticky,” she said. “Once you raise them, it’s very hard to go back.”
Raising pay can also improve job performance, compelling companies to see workers as more valuable and to give them more responsibilities — and treat them with more respect, Ton said. But providing more regular schedules is also essential.
“I think workers are finally fed up,” she said. “They’re used like robots.”
Several national employers have announced higher pay in recent months. Amazon is offering starting wages of $18 to $22.50 an hour — up from $15 — for warehouse and transportation workers, and Costco just went to $17 an hour, after a bump to $16 in February. Starbucks, CVS, and Walgreens are all boosting base pay to $15 an hour.
At Bank of America, the entry-level wage was $15 an hour when Ajna Angjeliu started as a teller in Boston in 2019. Since then it’s risen several times, and hit $21 in October.
“It has built trust between me and the company,” said Angjeliu, 22, who now assists clients with their accounts and attends Boston University part time, while helping her parents pay the bills. “I know this organization is a company that is going to help me grow.”
Tilan Perera, the branch manager at 100 Federal St., where Angjeliu works, has seen interest in jobs grow as the wage rises. “There are more people applying,” he said.
The bank plans to hire 5,000 people this quarter and raise starting wages to at least $25 an hour by 2025.
Smaller employers are also increasing pay. More than three-quarters of owners in a recent National Federation of Independent Business survey said they had either already increased compensation or were planning to soon, the highest percentage in 48 years. David Weaver, president of the Compensation & HR Group in Burlington, said pay is increasing mostly at the entry level, with quick-service restaurants, grocery stores, retail stores, and banks advertising higher hourly wages in the $17 to $21 range.
Still, skyrocketing inflation means those raises may not mean much.
It’s a vicious circle, of sorts, said Christopher Carlozzi, Massachusetts director of the National Federation of Independent Business. “A lot of price increases that consumers are seeing is a result of wage increases due to labor shortages.”
At Whole Foods Market in the Boston area, the starting wage went from $15 to $16 an hour this fall, and employees above that got a 50-cent bump. Workers also get an extra $2 an hour through early January, and overtime and Sunday pay is doubled.
One local employee, who asked not to be identified because he wasn’t authorized to talk to the media, said he was making $19.20 an hour after the raise, and $38.40 on Sundays. “That’s teacher pay,” he said, noting that a customer told him she might apply because the Sunday rate is more than she makes as a nurse.
The 50-cent raise doesn’t make a big difference to him, but the extra Sunday pay means he can work fewer days. That will likely change in January, though. “That’s kind of depressing,” he said.
Fred Goff, chief executive of the Cambridge-based employment platform Jobcase, said employers love to tout pay increases, but when you consider how many of them are temporary, and how much the cost of living has risen — and how high some corporate profits are soaring — it rings hollow.
“There’s a lot of people who want to be clapped on the back because they’re raising wages from $13 to $15 an hour,” he said. “Don’t do me any favors if you’re just keeping track with inflation.”
Katie Johnston can be reached at email@example.com. Follow her on Twitter @ktkjohnston.