WASHINGTON — The benefits of the U.S. recovery that began more than five years ago are flowing downward.
Lower-wage workers saw bigger pay gains during the past year than the highest earners, reversing the trend from earlier stages of the recovery, according to economists at RBS Securities and Goldman Sachs. While the improvement is nascent and minimal, the plunge in fuel prices is magnifying the effects.
Fatter paychecks bode well for economic growth as families at the lower end of the wage scale are more likely to spend extra cash than their wealthier counterparts, who tend to squirrel some of it away. That means the luxury categories such as private jets that dominated sales last year are giving way to the more mundane, including televisions and restaurant meals.
“For the first time, real paychecks of households in the middle class are not getting smaller anymore — they’re getting incrementally bigger,” said Guy Berger, a U.S. economist at RBS Securities. “This puts a little more strength behind consumer spending because you’re not very dependent on a small core of very wealthy households to power the recovery.”
Total income for those making less than $12.50 an hour climbed 3.8 percent in the year through October based on a three-month average adjusted for inflation, according to a Nov. 13 report by Goldman Sachs economists. The gain, which takes into account hourly wages, the length of the workweek and employment, exceeded that by any other group and compared with a 2.5 percent increase for those making $45 an hour or more.
Susan Carpenter, 44, a supervisor at a Lincolnton, N.C., factory that makes oil filters, said she can see the improvement. The two raises she’s received since starting work in February 2012 both occurred this year. She now makes $12 an hour — up from about $10 last year, and is putting in more than 40 hours a week.
For now, she’s using the extra money to “get caught up on bills,” Carpenter said. “Hopefully by the middle of next year I’ll actually get to have some savings.”
An October report by New York-based Goldman economists Jan Hatzius and David Mericle showed real pretax income of production and non-supervisory workers, which accounts for about the bottom 80 percent of the private-sector wage distribution, rose 3.5 percent in August from the year before.
A further pickup to around 4 percent is probable over the next six months, they said. Except for one year at the end of the previous expansion, that would be the fastest pace of growth since the 1995-to-2000 boom.
Although income inequality has increased over the longer term, the data are “consistent with other indications showing a relative improvement at the bottom end of the income distribution over the past year or two,” they wrote.
What full-time workers at what economists call the 10th percentile — making more than the bottom 10 percent of the workforce and less than the other 90 percent — usually earn per week has risen for the past six quarters after adjusting for inflation, according to Berger’s calculations based on Labor Department data. Earnings for workers at the 90th percentile have fallen in the past year.
