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Better days for low-wage earners

U.S. disparity thins as economy climbs

Life is looking up for Marco Ruiz, whose four months of unemployment ended in December when a landscaping company in Dallas hired him at $9.50 an hour, with small raises since then and a promotion in May.

“Things have gotten better,” said Ruiz, 44, a maintenance supervisor at The Grounds Guys, which also added a part-time worker this year as sales are climbing. “This is a good job. I’m making $12 an hour.”

Five years into the economic recovery, better days are finally arriving at the bottom of the job market. Since late 2013, unemployment has declined more rapidly for workers with a high school education than those with some college, and incomes for less-skilled and lower-paid employees have grown faster than for those near the top of the ladder, according to government data analyzed by Goldman Sachs.

“It looks like things are turning,” said Jan Hatzius, chief economist for Goldman Sachs in New York. The pickup is “looking a bit stronger for less skilled, lower paid workers. There’s been a little bit of the closing of the gap over the last year or so.”

The outperformance at the low end of the labor market, while helpful to the economy, hardly makes a dent in income inequality. The chasm between the richest 1 percent and remaining 99 percent is the widest since the 1920s, according to research by economists Emmanuel Saez of the University of California at Berkeley and Thomas Piketty of the Paris School of Economics.

Nonetheless, economists at Goldman Sachs and JPMorgan Chase & Co. say the data on Americans at the low end of the wage and skills spectrum are looking more encouraging.

Unemployment among workers with a high school education or less fell to 6.3 percent in April, down about 1 percentage point from December, according to Labor Department data cited by Hatzius. In the same period, workers with at least some college saw a smaller drop, to 5.7 percent from 6.1 percent.

Average hourly earnings for production and non-supervisory workers grew at a 2.3 percent year-over-year rate in April, compared with 1.4 percent in mid-2012, Labor Department figures show.

Earnings for all workers, including higher-paid supervisory staff, has been hovering near a 2 percent pace since 2010.

“At the margin, the labor market has now made a bit more progress and that additional progress is helping people at the low end,” Hatzius said. Even so, that “doesn’t change the fact that there’s been a widening of the gap over a longer period.”

Hatzius and JPMorgan’s Chief U.S. Economist Michael Feroli both cite improvement in a gauge that compares earnings of Americans at the 90th percentile – whose pay exceeds that of 90 percent of their fellow workers – with the bottom tenth. In a typical week in the first quarter of 2014, people at the 90th percentile made five times as much as people at the 10th percentile. That’s down from a record 5.3 times in late 2012.

Still, this so-called 90-10 ratio remains above a low of 4.4 in 2000, the earliest year for comparable data. While the ratio indicates that the lower end of the income scale is improving, it doesn’t show what’s happening to the very highly paid, the top 10 percent. The Labor Department doesn’t publish weekly earnings for that group.

“We may be seeing a turning point,” though, Feroli said. Wage disparity widens in bad times and shrinks as the business cycle improves, so it is reasonable to expect further narrowing, he said.

Still, “these things don’t move quickly. It’s unlikely that dozens of years of unequal wage growth would completely reverse in a year or two.”

Talk of progress on inequality “sounds a bit hollow” right now, said Heidi Shierholz, an economist at the Economic Policy Institute, in Washington, which conducts research on the economic condition of low- and middle-income families. She said she’d like to wait for further evidence confirming gains for lower-income workers.

“The improvement in the job market remains agonizingly slow,” she said. “That’s what’s happening on Main Street, that’s the broad reality.”

While gains at the low end of the income and skills scale are a move in the right direction, “we have a long, long way to go,” said Harry Holzer, a professor of public policy at Georgetown University in Washington and former Labor Department chief economist. The nation’s unemployment rate, 6.3 percent in April, is still above its pre-recession level and wages overall are stagnating.

“If the labor market tightens up, you’ll see positive inequality effects,” he said. “So far, the pockets of improvement haven’t been big enough to move the numbers.”

Faster employment and wage growth for those at the bottom, were it to have staying power, would help lift consumer spending, the biggest part of the economy.

“It is good news for the economy,” said Ellen Zentner, a senior economist at Morgan Stanley in New York. “One of our expectations for the consumer this year and next is that we get a broader contribution to spending across more income groups.”