Economic Recovery Spreads to the Middle Class

For years, even as the economy recovered and the stock market soared, most American workers saw little evidence of better times in their paychecks.

But last month’s surprisingly large increase in both average hourly and weekly earnings, along with other encouraging data, has convinced many economists that falling unemployment and increased hiring are finally about to start paying off in terms of wage gains for a broader swath of workers.

“It’s the beginning of an uptick, and we should see it continue over the next year or two as the unemployment rate falls and the labor market tightens,” said Nariman Behravesh, chief economist at IHS, a private economics and forecasting firm. “You have to be careful, but my gut instinct is that this is the beginning of better wage performance.”

Still, even the seemingly good news for wages in November wasn’t clear-cut. Although overall wages increased 0.4 percent — double what economists had been expecting — the gain for lower-paid workers in nonsupervisory and production roles increased only 0.2 percent.

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Tom Gimbel of LaSalle Network said salaries were rising for experienced workers. Credit Nathan Weber for The New York Times

Just how much the typical employee’s pay might go up in the months ahead — and whether most workers will see significant gains or just a select few — is a key question in the economic debate facing Wall Street, academia, officials in the Obama administration and, especially, the Federal Reserve.

On Tuesday and Wednesday, Fed policy makers will hold their final meeting of the year, followed by a news conference from Janet L. Yellen, the Fed chairwoman, where she is expected to provide further hints about when the Fed will begin raising short-term interest rates after keeping them near zero for the last six years.

The nascent uptick in wages has prompted further warnings from the more hawkish members of the Fed’s policy-making council who want the central bank to start tightening monetary policy sooner, rather than later, to ward off what they see as a potential threat of inflation.

But Ms. Yellen and a majority of Fed policy makers, pointing to evidence that inflation remains well under the central bank’s 2 percent target, do not appear to be unduly alarmed and probably still prefer to leave interest rates as low as possible until the trend is better established.

“Until it is unambiguous, people can spin it any way they want,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “One month is a curiosity, two months is interesting and three months is a trend.”

The split at the Fed is echoed in Washington, primarily along partisan lines. On Capitol Hill, some Republicans say it is time for the Fed to act, while Democrats in the Obama administration, like Thomas E. Perez, the labor secretary, say there is no rush.

“I welcome the point when my first concern when I get out of bed in the morning is having to address rapid wage growth,” Mr. Perez said. “I’m not too worried about inflation.”

As for the argument that the Fed needs to move sooner, rather than later, Mr. Perez said he “couldn’t reject that in stronger terms.”

“It’s time for the middle class and the aspiring middle class to share in the dividends of their hard work,” he added. “The folks at the top end have been doing great and our prosperity hasn’t been shared.”

By contrast, Representative Kevin P. Brady, a Texas Republican who is chairman of the Joint Economic Committee, has called on the Fed to move quickly, but even some conservative economists say the plunge in energy prices gives the central bank more flexibility this time around.

“Historically, inflation is something that gets out of the box because the Fed moves too slowly,” said Kevin A. Hassett, director of economic policy studies at the American Enterprise Institute and a former Fed economist. “But we’ve had a positive energy shock, so the Fed has ample room to wait and see.”

In just the last month, average gasoline prices have dropped by 25 cents, to $2.77 a gallon nationally, according to the federal Energy Information Administration, and more reductions are on the way as crude oil prices continue to fall.

And if wages keep rising, the typical American family will have a couple of thousand more dollars to spend in 2015.

Extended over the next year, November’s 0.4 percent increase in average hourly earnings would equal an annual wage increase of nearly 5 percent, more than double the 2.1 percent increase recorded over the last 12 months.

“If the average is 2 percent, there are a lot of people getting next to nothing,” Mr. Shepherdson said. “And 2 percent wage growth when corporate profits are skyrocketing makes people very angry.”

But before anyone strikes up “Happy Days Are Here Again,” Mr. Shepherdson cautioned that a previous 0.4 percent rise in wages in June 2013 was followed by no increase the next month. Similarly, the 0.4 percent gain in October 2011 also showed no signs of staying power.

What might be different this time, Mr. Shepherdson said, is that the rise in average hourly earnings coincides with other positive data, including a fall in jobless claims, a declining unemployment rate and healthy hiring by private employers, as well as an increase in job openings.

On Monday, the Federal Reserve reported that industrial production in the United States rose by 1.1 percent in November, and also revised upward the increase for October. Over all, the new data shows factory output in the United States has finally exceeded its prerecession level.

Despite the positive data recently, Fed policy makers have made clear that they won’t act on rates this week, or at their next meeting in January, but rather wait at least until March and more likely June 2015, at the earliest, economists said.

One possible development on Wednesday, when policy makers wrap up their meeting, is that the Fed will tweak the language in its policy statement and drop its reference to keep rates near zero “for a considerable time.”

Although optimists like Mr. Shepherdson and Mr. Behravesh say the wage gains should become broader as unemployment continues to fall, professionals on the front lines of the labor market say higher-paid, better-educated workers with specialized skills are still getting the greater share of raises right now.

“What people want to see is 1999 or 2004, when companies were saying, ‘We’ll hire anyone,’ ” said Tom Gimbel, chief executive of LaSalle Network, a Chicago staffing firm. “That’s not what’s happening now.”

Instead, Mr. Gimbel said, salaries are rising in sectors in which experienced workers are harder to find, like technology, finance and higher-level accounting positions, and where salaries tend to be at least $80,000 or more.

For recent college graduates with liberal arts degrees, or workers in call centers and in data processing jobs, where yearly wages are less than $50,000, Mr. Gimbel said, “we’re bringing people in at the same salary as 10 years ago.”

Mr. Gimbel added that new college graduates were still willing to take jobs they might have rejected in the past, like working in a call center.

“They figure, “The sooner I get a job, the quicker I can start paying off a mountain of student debt,’ ” he said. “And for guys working as a lifeguard or in the gym, a call center is white-collar experience.”