Why no raise? 4 reasons, but there's hope

Nicholas Reed has seen enough of the job market to know that if he ever wanted a comfortable life, he would have to return to college.

At 27, the Marlboro resident has worked at restaurants, retail stores and a nonunion job at a transportation company. They helped pay for his education at Georgian Court University in Lakewood. But deep down, he knows they are dead ends.

"Right now, I'm working a lot of jobs that pay $13 an hour and under," Reed said.

The U.S. economy has been expanding for nearly six years. Corporate profits are near record highs. Productivity is soaring. But workers aren't sharing in the wealth.

Experts say it has exacerbated income inequality between the very rich and everyone else. And it has called into question a basic premise of the free market: Companies invest in their product, increase sales and profits and reinvest in their workers to stay ahead of the competition.

It wasn't always that way. Productivity and workers' wages climbed in lockstep from 1947 until about 1978. Since then, productivity continued to rise, but wage growth has been anemic – except for a stretch in the late 1990s, when the technology revolution lowered the unemployment rate to less than 5 percent, according to the Employment Policies Institute, a left-leaning economic research firm in Washington, D.C.

Where is the extra money going? To the top. A Rutgers University study in 2014 found New Jersey's top 1 percent of earners received all of the income gains in the state between 2009 and 2011.

The trend is at the heart of recent stories. Unions have launched protests to increase the federal minimum wage from $7.25 an hour to $15 an hour. Employers such as Aetna, Walmart Stores Inc. and McDonald's have announced plans to increase wages for the lowest-paid workers.

But the dwindling middle class is causing plenty of anxiety. Jaclyn Ciccone, 20, of Waretown, is a sophomore at Georgian Court, studying medical imaging. She said there should be jobs available for her when she graduates, but many of them are temporary assignments that don't provide benefits.

"When you can't pay off your student debt and you can't pay for your housing, how are you really living your life?" Ciccone said.

Why aren't wages rising? Here are four reasons (and one that suggests it's not a lost cause).

Shareholders come first

Corporate profits were near record highs at the end of 2014, accounting for nearly 9 percent of the economy after taxes, according to the U.S. Bureau of Economic Analysis.

Companies returned a record $903.7 billion to shareholders in the form of dividends and share buybacks in 2014, up from the $787.4 billion spent in 2013, and a new record, according to S&P.

Labor advocates said it is a short-sighted strategy. Instead of using the money to reward existing workers, hire new ones and build the company for the long haul, they are using it to boost their stock prices.

"They're not reinvesting it," said Steven Pressman, an economist at Monmouth University in West Long Branch. "It's going to shareholders."

Pay the rent

Corporations have become so big and powerful, Pressman said, that they have successfully lobbied the government to protect their wealth through special favors – from tax breaks to beating back changes that would increase competition.

Economists call it rent-seeking. And the impact is two-fold: The government has less tax revenue it ideally would spend on, say, schools and roads. And companies needing to protect their market share have less incentive to spend more on labor.

Worker advocates say the practice is alive and well in New Jersey, where the state's Economic Development Authority has approved more than $4 billion in potential tax breaks to corporations that move to or stay in the Garden State, according to New Jersey Policy Perspective, a left-leaning research group.

"We're going to forgo a significant amount of lost revenue with a gentleman's agreement that you're going to create jobs in New Jersey," said Analilia Mejia, director of New Jersey Working Families Alliance, a worker advocacy group in Newark. "I think it's a false premise."

Taxes

New Jersey employers would reinvest in their businesses, but the state's taxes and regulations are onerous, business groups said.

New Jersey has the nation's worst business climate, according to a study by the right-leaning Tax Foundation, a Washington, D.C., research group. It looked at corporate taxes, individual income taxes, sales taxes, unemployment insurance taxes and property taxes.

Meantime, New Jersey lawmakers have floated ideas ranging from a higher tax on millionaires to paid sick time off that make the future for business cloudy, said Michele Siekerka, president of the New Jersey Business and Industry Association, a business lobby group.

"When the cost of doing business keeps going up, there's only so much pie to go around," Siekerka said.

The economy

Companies haven't handed out raises because they don't need to; workers in the slow growing economy are simply happy to have a job.

In 1998, U.S. wages rose a healthy 2.6 percent. The nation's unemployment rate ended the year at 4.4 percent. New Jersey's unemployment rate ended the year at 4.3 percent.

Today, the jobless rate is 5.5 percent nationwide and 6.5 percent in New Jersey. But that only tells part of the story. The unemployment rate including workers who dropped out of the labor force because they got discouraged or are working part time but want to work full time is 11.6 percent nationwide and 12.4 percent in New Jersey. That rate in 1998 was 8 percent in the U.S. and 7.7 percent in New Jersey, according to the U.S. Bureau of Labor Statistics.

In the tug-of-war between employers and workers, the scale remains tilted in the employers' favor, economists said.

Reason for hope

But that might be changing. Unemployment claims are at record lows. Job openings are near record highs. And wages and salaries at companies rose 2.8 percent in the first quarter, a faster pace than a year ago, said Joel Naroff, an independent economist in Holland, Pennsylvania.

"We're seeing it accelerate," Naroff said. "It's not going to accelerate on a monthly basis, but the upward trend is very clear already, and I expect it to accelerate fairly significantly the second half of the year."

Michael L. Diamond; 732-643-4038; mdiamond@gannettnj.com

AVERAGE ANNUAL PAY RAISES

1947-1979: 1.7 percent

1979-1995: -0.4 percent

1995-2000: 1.4 percent

2000-2007: 0.5 percent

2007-2014: 0.5 percent

Source: Employment Policies Institute