Right now, the two biggest winners in the labor market are minimum-wage employees, whose pay is rising with government mandates and raises from large corporations, and blue-collar workers, as Friday’s jobs report makes clear. This is bad news for upper-middle-class workers, who rely on the products and services provided by these workers, and whose pay isn’t rising as quickly. It’s also a reversal of some of the income inequality trends we’ve witnessed over the past several decades.
States and cities nationwide are ratcheting up their minimum wages. California’s minimum wage for large employers, for instance, increased to $11 per hour on Jan. 1, from $10.50, and will increase by $1 per hour every year until it reaches $15 per hour in 2022.
Perhaps not coincidentally, Walmart recently announced that it was increasing its minimum wage to $11 per hour (after kicking off this trend back in 2015). Target, with a goal of raising its minimum wage to $15 per hour, announced last week that it was raising its minimum wage to $12 per hour. Every industry and business that relies on low-wage employees will find itself forced to raise wages to compete with employers like Walmart and Target to attract or retain workers.
Blue-collar workers are the other group benefiting, both in job creation and wage growth. Goods-producing jobs, which include construction, manufacturing and mining, have increased by 536,000 over the past year, growth as fast as we’ve seen in the past 30 years. Additionally, while measures of average hourly earnings for all workers remain around 2.5 percent, growth for goods-producing workers is spiking, with wages up 3.5 percent over the past year. We haven’t seen blue collar wage growth outpace overall wage growth like this on a sustained basis since the early 1980s.
These trends are to be celebrated, but they end up being a burden on one group of workers in particular: the upper-middle class. These workers have been some of the biggest winners in the American economy over the past 30 years. But the tight labor market could begin to change that. Rising wages for construction workers raise the cost of housing, and these white-collar workers tend to be clustered in metro areas that already have high housing costs. Rising costs for minimum-wage workers means the cost of many labor-intensive services consumed by the upper-middle class — day care, housekeeping and dining out — are rising and will continue doing so.
Also, employers forced to devote more money to their lowest-paid workers may look for cuts elsewhere in their workforce. When Walmart announced its higher minimum wage, it also announced cutting thousands of store-management roles.
The net effect of all this means that some of the income-inequality trends observed over the past several decades are reversing, potentially narrowing the gap between the top 25 percent of earners and the bottom 75 percent. It changes the math of labor-market migration too. For upper-middle-class workers in a world where low-wage and blue-collar workers are seeing the fastest wage growth, the only play might be to move somewhere cheaper.
Conor Sen is a Bloomberg View columnist. He is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider.