The Great Recession took a toll on the global economy, but American workers were among those that were the hardest hit. Job losses tied to staggering corporate profitability sent unemployment rates higher and average pay lower, but now that the economy has posted four consecutive years of growth, and unemployment is at six-year lows, wages must be recovering, right?
Nope. The most recent data out of the Bureau of Labor Statistics shows that average hourly wages inched up by just 1.7% in the past year. That's hardly enough to put the kids through college, but before you get too discouraged, there is some evidence that workers are about to begin getting pay raises. If so, employees may want to see how their income stacks up against the average worker before heading to the negotiating table.
By the numbers
According to the Bureau of Labor Statistics, the average American worker got paid $24.57 per hour in December, or $850.12 per week. That was up from $24.17 per hour and $829.03 per week a year ago.
However, average income can be misleading given that wages differ significantly from industry to industry.
For example, utilities employees were the best paid workers in December, earning an average $35.86 per hour, or $1,509.71 per week. That was significantly better than retail workers, who earned an average $17.04 per hour or $536.76 per week.
Although average hourly wages have only inched up in the past year, there are some signs that indicate wages could be heading higher soon.
According to Glassdoor, employees are more confident than they've been about their employment situation than since the recession and workers are increasingly optimistic about the potential for a pay raise. In fact, most employees think that they'll get a pay raise of between 3% and 5% this year. Additionally, if employees don't get that wage increase, they're much more likely to search for a new job than at any point since at least late 2008.
That could mean that the pricing power is beginning to shift back to employees. If it does, there may be a pay showdown coming between employees and small businesses. In December, the National Federation of Independent Businesses, or NFIB, reported that just 15% of managers expect to boost wages in the coming months. That's a pretty small number given that the NFIB's small business optimism index is at its highest levels since 2006.
If wages finally do begin to climb in 2015, employees should be ready with plans that include cutting debt and boosting savings for retirement.
According to Bankrate, roughly a quarter of Americans have no emergency savings and according to the Federal Reserve, nearly half of Americans don't have any money invested in retirement accounts. Unfortunately, those that do have retirement accounts are likely to find that the amount they have in them is likely to fall short of retirement income goals. According to the Employee Benefit Research Institute, just 18% of workers feel confident about their financial situation during retirement.
In order for that to change, workers will need to stash more money in company offered 401(k) or 403(b) plans, as well as in traditional IRAs or Roth IRAs. Those investment vehicles are great ways to accumulate money over time. For example, if the average worker earning $850 per week gets a 3% raise of $25.50 per week and that worker stashes that extra money in an investment every year that earns a hypothetical 6.5% annually, the investor would have an additional $51,876.42 in 20 years. That may not be enough to get the average Joe a summer estate in the Virgin Islands, but it could certainly go a long way toward making sure investors have more retirement income than their peers during retirement.