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Biggest drop in pay hitting America’s lowest paid workers

Pras Subramanian
Producer/Reporter
A worker washes dishes at a restaurant.

While another big jobs report looms tomorrow, one area of crucial importance that economists will be watching is the Bureau of Labor Statistics data on wage gains. Over the past year, and since the end of the last recession, wage improvements have been elusive. And now a new report from advocacy group the National Employment Law Project finds that effective take-home pay for many workers has actually fallen since the recovery began in 2009, especially for the lowest-paid workers.

The left-leaning group reports income for the lowest paid workers, defined as the lowest-paid fifth of all workers, has actually fallen 5.7% since 2009. The types of jobs seeing the greatest drops in income were for cooks and food prep workers, personal care and home health aides, and janitors and cleaners.

"This report quantifies something I think we know in a general way for a while,” Yahoo Finance's Rick Newman says in the attached video. “This is real incomes - which means relative to inflation - and I think what's going on is people aren’t getting pay cuts in these lower paying jobs, I think they're just not getting raises.” The traditional 3% or even 5% standard of living raises are a thing of the past, as employers don’t have a need to give them.

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It is true the country's seeing some big employers like Walmart (WMT), The Gap (GPS), even McDonald's (MCD), bump up pay for its lowest earning workers. It’s possible these wage hikes are needed in certain areas with a competitive labor market, but Newman surmises in most cases bumping up pay isn’t necessary for most employers.

“A lot of people are sort of drifting into this lower skill, lower paying job category, and there's an oversupply of workers,” he says. Newman maintains this is really a supply and demand issue, “because companies don't have to keep raising pay in order to get the people they want, there are plenty of people who can do these jobs.” Newman states that’s why the country is seeing the “stagnation of the middle class,” and people sliding out of the middle class downward.

With that in mind, many on Wall Street, and for that matter Main Street, will be watching tomorrow’s big non-farm payroll report. While economists are expecting a decent size number of job gains, around 220,000 new jobs, what most will be watching are year-over-year wage gains.

Newman contends it’s still going to take more time and a tremendous amount of job gains at the lower end to see concomitant raises in pay. “It's going to take a long time to sort of tighten the slack in the market for lower paying jobs, because there are still tons of people who can do those jobs,” he says.

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