Kristian Rouz – Wage stagnation, which has plagued the US economy for almost two decades, is particularly acute when it comes to recent college graduates, whose living standards happen to be the lowest of all the post-WWII generations of Americans.
While a record number of young professionals are working minimum wage jobs, the role of formal education as a means of social betterment is rapidly eroding as it also entails a massive accumulation of student debt, averaging at some $30,000 per student.
Since the Great Recession, worker compensation for recent graduates with four-year bachelor’s degrees has hardly increased, and, in some cases, has actually shrunk. While the past eight years were characterised by low inflation and near-zero interest rates, the recent acceleration in price growth and the Federal Reserve’s lifting of base borrowing costs are starting to bite. The heavily-indebted college grads are mired in economic despair, and there are no immediate solutions to the gaping abyss of highly-qualified poverty.
Based on US Census figures, the research shows that a biology major, for example, earned an average of $31,000 per year in 2015, some $4,000 less than five years prior. When adjusted for inflation, the loss in effective wages is even more spectacular.
The highest-paid entry-level positions for recent graduates are in chemical engineering and IT, which pay an annual average of about $60,000. However, most IT jobs are concentrated around the Silicon Valley tech hub, where rents are stunningly high, starting at $2,500 per month for very basic accommodation. Homeownership is hardly a realistic scenario for most young professionals in this overpriced market reality.
"It has been like this for the past five, six years now," Ban Cheah of Georgetown said. "It's a little depressing."
Graduates with social sciences majors earned about $41,000 per year on average in 2009, and $39,000 in 2015, while a graduate holding a major in law and public policy earned $39,000 in 2009, and only $33,000 in 2015. Liberal arts graduates were paid some $33,000 a year in 2009, and $32,000 in 2015, while architecture graduates earned some $59,000 in 2009, and $56,000 in 2015.
Again, adjusted for inflation, even though it had been dismally low during the period of 2009-2015, these numbers look even more desperate.
Facing the tough reality of working in their field of study, young professionals are looking at other, faster-growing and better yielding areas of the labour market.
"If you’ve tuned into CEO earnings calls recently, you’d know that a common theme is wage pressure, especially in low-pay sectors such as restaurants. CEOs cite the need to attract quality hires, a tightening labour market, and the push from higher minimum wages,” Emanuella Enenajor of Bank of America said. “Last year (in 2015), companies like McDonalds and Walmart announced higher wages, raising fears of a sudden pick-up in wage pressure, which we argued against in our piece “Fast food, fast wages?”
Lower-paying jobs are ugly and unattractive at first glance, but in fact, vertical mobility and greater prospects for raises happen to be significantly better than those in professional fields. In 2016, the lowest-paying 20pc of US industries saw average wage gains of 3.4pc per year, significantly outpacing the inflation, whilst the rest 80pc of the labour market saw salaries rise by an average 2.4pc.
The top 80pc of US industries are facing tough competition for jobs on the supply side of the labour market. The bottom 20pc, or the lowest paying employers, however, have more openings than they are able to fill.
In late 2016, some 23pc of low pay sector workers had a Bachelor’s Degree or higher, which is above the 2001 figure of 18pc. It is worth noting that the US labour market has expanded significantly during those 15 years, meaning in absolute numbers there are many more college grads working restaurants and hospitality jobs, for example, than before.
Still, the risks of poverty and indebtedness are not offset by the gains in hiring and wages in the low-paying sectors. Worker compensation for young Americans is generally in a downward spiral.
“While those with college degrees or advanced degrees saw wage growth of 8.5pc and 6.9pc, respectively, from 2000 to 2016, educational attainment has not been sufficient to return many workers to where they were before the recessions of the 2000s,” analysts from the Washington-based Economic Policy Institute (EPI) wrote.
Such an economic reality is discouraging the most pragmatic of the American youths from putting any effort into obtaining any higher education whatsoever, as if the student debt nightmare alone was not enough to hamper the prospects of education in the US.