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With millions still jobless, why is it that wages are going up?

Layoffs have made companies more dependent on the employees who remain — which means employers are not going to cut their wages.
Image: A bartender makes a cocktail at a pub in Houston on March 2, 2021.
A bartender makes a cocktail at a pub in Houston on March 2, 2021.David J. Phillip / AP

In the latest monthly employment data, hourly pay jumped by 7 cents an hour across all sectors on a monthly basis — a notable increase, since the vast majority of the new jobs last month came from the leisure and hospitality sector, including restaurants and bars as states eased lockdown restrictions.

How — and why — workers are seeing this increase is tough to tease out. The Bureau of Labor Statistics notes that comparisons are difficult and says the sharp increase in wage growth that coincided with surging unemployment is due primarily to the huge number of low-paying service-sector jobs in stores, restaurants, hotels and entertainment venues that have been lost.

In February, the average hourly pay rate for leisure and hospitality workers was $17.28. While this is a small increase on a month-to-month basis, it reflects a much larger annual jump from the $16.90 average hourly pay workers in this sector earned a year ago. Hourly pay last month was $30.01 across all sectors, compared to $28.51 in February 2020, the last snapshot of the labor market before Covid-19 shutdowns sent unemployment soaring.

“Wage growth has remained surprisingly resilient in the face of the pandemic,” said Mark Zandi, chief economist at Moody’s Analytics.

“In industries that have been hit hard by the pandemic, there's no reason for employers to cut wages, because they cut jobs,” Zandi said. Those layoffs, in turn, made the companies more dependent on the employees that did remain. “They’re not going to cut their wages, because they absolutely need them,” he said.

Harry Holzer, professor of public policy at Georgetown University, said a contributing factor could be the minimum wage increases that went into effect in 20 states at the beginning of January. “I would think in retail, and in leisure and hospitality, the minimum wage is important,” he said. These increases might not have been captured in the January payroll data, he added, because of the timing of payroll processing: Workers might have received their first paychecks with the higher rate after the BLS’s survey period had passed.

Nick Bunker, economic research director at, speculated that leisure and hospitality wages could be rising because employers might be re-staffing higher-level positions first. “Even within that sector, within those industries, those positions aren’t always low-wage themselves,” he pointed out.

If this is the case, it’s not unlikely that a rush to hire cashiers and waitstaff as reopenings accelerate could have the opposite effect. “If a lot of low-wage workers are coming back, that could pull the average down,” Holzer said.

Some suggest that effect could be mitigated, though, by the expanded unemployment benefits out-of-work Americans have been able to access for much of the pandemic — benefits that might equal or even exceed what low-wage workers could have expected to collect in a paycheck.

If there is a sense of urgency to bring workers — especially lower-paid service sector workers — back, companies might not want to wait until people exhaust those benefits to draw them back into the labor pool.

“They may have decided, ‘We need to increase wages here to get people back on the job quickly.’ In that case, they may be competing with unemployment insurance,” Zandi said.

The fluctuations in how many hours a week people work also suggest a labor market at an inflection point, as companies try to balance the dual pressures of hiring and business pick-up. Across all sectors, the average private-sector workweek fell by 0.3 hours. “In times when business gets a little better, employers might increase the workweek before they bring workers back,” Holzer said.

Pay also could be climbing if companies are willing to offer slightly more in order to fill positions quickly, but don’t yet have as many hours available to offer workers. Bunker added that this explanation especially makes sense for the hospitality and leisure sector, which traditionally has a large share of part-time employees.

Economists say these are hopeful signs that employers are orienting themselves towards a quick recovery as spring draws near.

“With this $1.9 trillion bill passing, with vaccinations picking up steam, with the warmer weather — all those things should generate some real labor market recovery soon,” Holzer said.