Monday, July 24, 2006


That Raise Might Take 4 Years to Earn as Well

Those with bachelor's degrees are finding their incomes stagnate despite a growing economy.
By Molly Hennessy-Fiske, Times Staff Writer
July 24, 2006

WASHINGTON — The economy has been steadily growing, with unemployment low and corporate profits at historic highs.

So why can't David Lewis get a decent raise?

Lewis worked his way up through a string of technology companies around San Jose, finally landing a $77,000-a-year Web design position. But in five years in that job, he received only a single 5% pay increase.

That was troubling for someone facing the rising costs of rent, food and raising a newborn daughter. But Lewis, 36, found it especially troubling because he had done what had traditionally helped Americans share in the benefits of a growing economy: He had earned a four-year college degree.

Wage stagnation, long the bane of blue-collar workers, is now hitting people with bachelor's degrees for the first time in 30 years. Earnings for workers with four-year degrees fell 5.2% from 2000 to 2004 when adjusted for inflation, according to White House economists.

It is a remarkable setback for workers who thought they were well-positioned to win some of the benefits of the nation's economic growth, and it may help explain why surveys show that many Americans think President Bush has not managed the economy well.

Not since the 1970s have workers with bachelor's degrees seen a prolonged slump in earnings during a time of economic growth. These workers did well during the last period of economic growth, 1995 to 2000, with inflation-adjusted average wages rising 12%, according to an analysis by the liberal-leaning Economic Policy Institute.

For Lewis, the decline in buying power prompted a drastic decision: Last year, he moved his family from San Jose to Gardnerville, Nev., where the cost of living is lower.

"Nothing else was going down except wages," said Lewis, who graduated from Cal State Long Beach in 1994 with a degree in fine arts. Now he is starting his own Web design business. His wife, Kimberly, works for the county director.

The recent wage slump has affected a substantial part of the workforce. About 30 million Americans age 20 to 59 have a four-year degree and no advanced degree, according to the National Center for Education Statistics.

The White House economists did not lay out wage trends for people with master's and other advanced degrees. But other studies have found that their inflation-adjusted wages were essentially flat between 2000 and 2004, and the studies have confirmed a decline for people with four-year degrees.

When wages for people with bachelor's degrees declined in the 1970s, the cause was a flood of baby boomers entering the job market.

This time, economists say, much of the blame goes to trends familiar to workers with less education, who are now creeping up the wage ladder.

Offshoring, which has shifted manufacturing and call-center jobs to such nations as Mexico and India, is increasingly affecting white-collar sectors such as engineering and software design.

And companies have continued their long effort to replace salaried positions with lower-paid, nonsalaried jobs, including part-time and freelance positions without benefits. Those contingent positions make up nearly half of the 6.5 million jobs created since 2001, said Paul Harrington, a labor economist at Northeastern University in Boston.

Harrington said the number of salaried jobs increased an average of 11.5% during the last five economic recoveries, compared with 2.5% during the current recovery.

"There's clear deterioration in the college labor market," he said. "The American economy just does not generate jobs the way it has historically."

Employment recruiter Alan Guarino has seen a similar change in his work. He says about 15% of workers with four-year college degrees are working at "gray-collar" jobs below their skill level, such as in retail, mainly because they cannot find better-paying jobs; before 2001, the figure was about 10%.

"A very significant percentage of the jobs we are creating are contingent jobs," not salaried positions, said Guarino, chief executive of Cornell International, a staffing firm.

Jonathan Hess, 25, took a low-paying job — and then found himself falling further behind.

A graduate of UC Santa Cruz, Hess has been working as a clerk at a Borders bookstore in San Francisco. Until recently, he was earning $1,300 a month, living paycheck to paycheck. Then the manager reduced staffers' hours and forced them to use their vacation time to avoid unpaid leave.

"It's a good corporation, but the wages are barely livable," Hess said of Borders Inc. "Anybody who's using it as their sole means of surviving — it's tough."

J. Tony Smith, 38, won a $5,000-a-year raise at his Web design job with a San Francisco art school, which boosted his salary to $55,000. But that has been his only raise in almost three years.

Smith feels like he has stalled while inflation hasn't.

"It's not a healthy economy, and folks do struggle paycheck to paycheck," said Smith, who graduated in 1990 from UC Santa Cruz with a degree in literature and theater. He worries about providing for his 11-year-old son and 7-year-old daughter.

Smith's sour opinion of the economy might seem unusual, given that gross domestic product has averaged a solid 3.8% growth in the last three years, including a 5.6% spurt in the first quarter of 2006. Unemployment remains low, 4.6%.

But Smith is far from the only person to take a dim view amid the upbeat statistics. In an Associated Press-Ipsos poll released July 14, 60% of respondents said they disapproved of how Bush was handling the economy.

"The administration is saying the only reason people are not sharing in the recovery is they don't have the right skills," said Lawrence Mishel, president of the Economic Policy Institute. But if college graduates are not doing well, Mishel said, "what does that say?"

Hess, the recent graduate living in San Francisco, said he was not surprised that the president had a low approval rating on economic policy, "if my job is any reflection of what people are experiencing."

Bush's advisors say graduates are earning less because their ranks are swelling and they face tougher competition for better-paying jobs.

But the advisors say it is a good sign that productivity is increasing, because a rise in wages tends to follow.

"Whether or not new college graduates are making more than they were five years ago, we do know the same people will be making more five years from now," said White House spokesman Ken Lisaius.

Not all college graduates are faring poorly. Starting pay is up for business administration, marketing and accounting majors, but down for humanities majors, according to the National Assn. of Colleges and Employers. Compared with 2005, starting salaries for accounting majors rose 5.5% this year, whereas those for English majors declined 4.1%.

However, some economists say wage stagnation could become a permanent fixture for most people with four-year degrees.

Harvard University economist Richard Freeman gained fame for his 1976 book "The Overeducated American," in which he detailed the previous erosion of college graduates' wages. Today, he believes college-educated workers will continue to see their wages erode because of the increasing globalization of the labor market.

And wage erosion is likely only to intensify as the number of college graduates rises in China, India and other offshoring hubs. China alone expects the number of college graduates to increase by 22% this year, with 4.13 million job candidates entering a domestic market with only 1.66 million jobs available, according to a Chinese government report released in May.

Still, a college education remains a ticket to higher-paying jobs. According to U.S. Census Bureau figures, college graduates earned an average of $51,206 last year, whereas high school graduates earned $27,915 and those with no high school diploma earned $18,734.

Smith, the San Francisco Web designer, said he would like to go back to college for a master's degree in education. He could earn more money as a teacher, he said, but he does not want to rack up student loans, and he cannot afford to take time off work to go to school.

When it comes to beating wage stagnation, he said, "I think people with families have it a bit harder. Folks who are single can take those risks."

In fact, economist Harrington predicted a related ripple effect from wage stagnation: "It's going to delay marriage. It's going to delay child-rearing," he said.

"Some of these people are never going to catch up. There is a real price we pay here in terms of the cost to the economy."



Learn and earn?

The average annual wages of college graduates fell during the economic recovery; those of high school graduates rose. Figures are adjusted for inflation.

Four-year college graduates

2000: $54,396

2004: $51,568

Percent change: Down 5.2%

High school graduates

2000: $28,179

2004: $28,631

Percent change: Up 1.6%

Source: The 2006 Economic Report of the President

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