This year is shaping up to be the year of the pay raise.
In the past three months, rank-and-file workers have seen some of the fastest wage growth since the early 1980s, as employers desperate to get workers back into restaurants, ballparks and plants are offering perks ranging from more time off, free food and higher pay to entice employees to return.
The pay hikes are reflected in the latest jobs report, which showed the U.S. economy added 850,000 jobs in June, the strongest gain since last summer. The unemployment rate rose slightly to 5.9%. Much of the hiring occurred in the restaurant, hotel and entertainment sectors that have seen the fastest wage gains. Average pay in the restaurant industry is now above $15 an hour for the first time.
In many ways, this is a story of basic supply-demand forces playing out in the economy. There’s a lot of demand for workers right now, and not a lot of supply of people ready to go back to work. Many of the unemployed are still dealing with health issues and child-care problems or a desire to reinvent themselves with a career change after the pandemic. Plus, ample government aid has given many workers enough of a savings cushion to remain jobless a little longer to see how their situation pans out, a labor force luxury that Republicans have roundly criticized.
The result is businesses are competing hard for a smaller pool of workers, and pay is going up — sharply. Economists say it’s the best time in years to ask for a raise or seek a new job.
Nowhere is this more apparent than in the leisure and hospitality sector. Average pay for hourly workers at restaurants, hotels and entertainment venues jumped 2.3% in June alone. That’s the kind of increase that typically occurs over the course of a year. Instead, it happened in a month. Pay is up more than 6% in the past three months — up nearly $1 to $16.21 an hour for workers who aren’t managers.
People who work in the hospitality industry are quick to point out that pay is still paltry compared to other fields. The work is still grueling, including standing all day and dealing with customers who can be unfriendly or outright irate. But workers are noticing — and responding — to the higher pay. More than 40% of the better-than-expected hiring in June was in the hospitality sector.
“It turns out that you can find workers, you just have to pay a better wage than in the past because wages of low-wage workers are going up,” wrote economist Betsey Stevenson, a former member of Obama’s Council of Economic Advisers on Twitter.
The U.S. economy is exhibiting signs of a so-called tight labor market that gives employees the bargaining edge. What is unusual is that this tight labor market is occurring at a time when there are still nearly 10 million unemployed workers, including 6.8 million people who had a job pre-COVID but still haven’t returned to work.
Economists and the White House expect that workers will actively seek jobs again in the coming months, especially as schools resume in the fall, the eviction moratorium expires at the end of July and the extra unemployment benefits end in September. Federal Reserve Chair Jerome Powell has repeatedly predicted a “very strong” period of hiring through the end of the year.
Already, there are signs that workers are no longer afraid to return to the workplace. Just 1.6 million workers said they were “prevented” from looking for work right now due to the pandemic, the Labor Department found, down from 2.5 million in May.
“It’s only a question of time before hiring catches up with buoyant labor demand. The economy is set for a jobs boom in the coming months, as labor supply constraints gradually dissipate,” wrote Lydia Boussour and Gregory Daco of Oxford Economics in a note to clients.
The June jobs report from the Labor Department did little to settle the ongoing debate between Republicans and Democrats over whether unemployment aid, which currently averages around $600 a week with the extra federal supplement, is holding back workers from seeking employment. The data for the June report was collected in the middle of the month when only a few states had ended the extra unemployment aid. The July report is likely to be more revealing, as roughly half of states are rolling back the extra federal unemployment this month as well as eliminating aid to gig workers and the self employed.
What is clear from the June jobs report is that firms that are raising pay are largely seeing the benefits. Businesses advertising $15 or more an hour are luring more applicants, and the pay hikes in the hospitality sector appear to be forcing other industries to raise pay as well, to stay above retail and restaurants. After companies like Chipotle said it would go to $15 an hour and Bank of America said it would go to $25 an hour by 2025, searches for jobs at those firms jumped, according to Indeed.com.
“If wages go up, people will take those jobs,” said Nick Bunker, economic research director at Indeed Hiring Lab. “Fifteen dollars an hour does seem to be a number people fixate on.”
Warehouses saw some of the next biggest gains in pay in June, as companies in this industry aim to stay several dollars above the hospitality sector. Average pay for warehouse workers who aren’t managers is now $19.13 an hour, up nearly 3% since March.
The pay hikes are prompting some workers to make life-changing decisions about their careers. Ruth Seward of Worcester, Massachusetts, was working at an environmental nonprofit when she saw an ad for a job directing an adult education program. The director role came with more pay — and summers off.
“I had in my mind that I wanted to work less and make about the same or more. And I think it’s possible,” said Seward, who recently received a 10% pay raise when she changed jobs.
But while pay is rising in many parts of the economy, some workers say they are still not ready to return to jobs for a variety of reasons. On top of that, retirements are up and 942,000 workers quit their jobs in June, the most in years, leaving employers in even more of a bind as they struggle to hire this summer.
For workers like Stephanie Walter, higher pay is welcome news, but she’s not eager to return to the restaurant industry.
Walter worked for more than 15 years at Applebee’s in Hazelton, Pennsylvania, before being laid off during the pandemic. She had inched her way up to $15 an hour and was able to fill in for any position at the restaurant. She’s been watching pay announcements in her town and says she’s hasn’t seen anything above what she was making before.
Still, the main reason she hasn’t gone back to work is because she and her husband decided to try their dream of opening a trading card and comic book store this summer. The stimulus and unemployment money gave them some seed money to start the company. And they are confident they can return to restaurant work if the store doesn’t take off.
“Without the federal money, this probably would not be happening. We saw an opportunity and took it,” Walter said. “If it doesn’t work, I’ll go back to Applebee’s and ask for more pay.”
The hospitality sector is likely to continue to be a test case in the months to come for whether higher pay will bring everyone back to work — and whether those pay increases will be passed right on to consumers in the form of higher menu prices.
The Washington Post’s Andrew Van Dam contributed to this report.