Wages in low-wage service jobs are rising faster than expected, study finds

Wages are rising, a new study found, with the gains concentrated among new hires in low-wage service industry jobs — the ones hardest hit by the pandemic shutdowns.

Wages for new hires employed in food preparation, protective services, cleaning services, and personal services were 7.7% percent higher than expected in the first quarter, according to a new paper by the Federal Reserve Bank of Atlanta.

“The strongest wage pressures are isolated to roughly 1 percent of the total employed,” Julie Hotchkiss, Atlanta Fed economist and author of the paper, wrote. “For these two reasons — surging demand for workers in some industries and more reluctant supply — the largest wage pressures showing up among low-wage service workers make sense.”

The findings come as concerns over labor shortages, especially in the restaurant and service industries, mount. Twenty-five states plan to cancel pandemic-era unemployment benefits to encourage jobless workers to seek new jobs.

NEW YORK, NEW YORK - JUNE 04: People walk by a Help Wanted sign in the Queens borough of New York City on June 04, 2021 in New York City. The U.S. economy added 559,000 jobs in May, bringing the unemployment rate down to 5.8 percent from 6.1 percent. Despite the positive economic news, millions of Americans are still looking for work or are in need of financial, food, and housing assistance. (Photo by Spencer Platt/Getty Images)
People walk by a Help Wanted sign in the Queens borough of New York City on June 04, 2021 in New York City. (Photo by Spencer Platt/Getty Images) (Spencer Platt via Getty Images)

One of the reasons wages may be increasing is because those industries have the highest job opening rates in March, the paper found. Arts, entertainment and recreation along with leisure and hospitality and accommodation and food services saw job opening rates of 10.7%, 8.15%, and 7.7%, respectively — well above the 5.6% job opening rate for the private sector in March.


Workers in those occupations also “may have good reasons to need extra incentives to get back to work” Hotchkiss wrote.

Many of those jobs have higher customer contact and COVID fear may still dissuade some workers from returning. Those industries also employ a higher share of women who may not have adequate child care options to allow them to return to work.

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Last, cash payments and unemployment benefits “would reduce incentives to look for work," Hotchkiss noted, a rising worry among Republican policymakers.

“It is a story of sector- or job-specific demand outstripping supply,” Nick Bunker, director of research at Indeed, told Yahoo Money. “The best way to get supply is to increase the price and draw more labor supply — in this case workers — into the market.”

While the research shows wage increases through March, more recent data indicates that wages in leisure and hospitality continue to rise at a fast clip. Wages for the average non-supervisory worker in the industry reached $15.87 an hour in May, up from $14.81 in January — the largest five-month increase on record.

A recent survey by the University of Chicago’s Initiative on Global Market found that over a third of the 43 economists polled expected wages to rise meaningfully due to the $300 supplement of weekly unemployment benefits that is available through September 6.

“It appears in the data from this research note and other places that wage growth for workers in directly affected sectors is right now really strong and possibly could be even stronger moving forward,” Bunker said. “Wages are what economists like to call ‘sticky’ in that they'll go up, and they really don't come down for the most part.”

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Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova

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