There's great news for some of the poorest workers in America

Wages are rising at their fastest pace since the financial crisis and it appears that the long pent up wage pressure may finally be leading to larger paychecks.

Most of the good news on wage gains, however, are coming just for the people who make the least, according to a note entitled “Joe six-pack gets a raise” from Emanuella Enenajor and Lisa Berlin, economists at Bank of America Merrill Lynch.

“The data confirm a trend of rising wage pressure in low-pay sectors with limited pressure elsewhere: the bottom 20% of industries, by pay, is seeing wages rise at a 3.4% year-on-year pace so far this year, but the remaining 80% of the market is only seeing wage growth of 2.4%,” said the BAML economists in a note to clients on Friday.

Enenajor and Berlin note, as we have previously, that many CEOs for generally lower-paying industries such as retail and food services have cited labour costs pressures in recent earnings calls. The BAML economists believe that there are two main drivers of wage hikes for lower-earnings individuals. They are:

  1. State-level minimum wage increases. A number of states including California and New York have bumped up their minimum wage over the past year and, according to Enenajor and Berlin, these increases account for around half of the outperformance for low-wage jobs over higher-earning jobs.
  2. A particularly tight labour market for younger, low-education workers. As we pointed out after last month’s jobs report, the unemployment rate for teenagers and those with low educational attainment is decreasing significantly. This, Enenajor and Berlin note, coupled with the fact that there are fewer and fewer low-education workers is putting pressure on wages in low-paying industries.

Combine those two factors are you get serious upward pressure on wages for low-earnings workers.

The raises for these workers, however, does not portend a huge uptick for the rest of the labour market, according to the BAML economists.

“In our view, wage growth outside of low pay sectors is likely to gradually increase as the overall labour market tightens,” wrote Enenajor and Berlin. “However, the trend will be slow, and will likely remain below that of low pay sectors, as the labour force of workers with higher educational attainment (who would presumably be competing for higher-paid work) has been expanding, pointing to a tempering force on wages.”

So everyone will be getting a raise, but those at the bottom will get them a lot quicker.

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