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Great Recession’s Lingering Legacy

SANTA FE, N.M. — Steady paychecks and a 40-hour workweek are not the norm for many employees in New Mexico, according to a new state study that puts in perspective some of the impacts of the Great Recession and the gradual recovery since.

“When the Great Recession struck, layoffs were not the only cost-saving measures implemented by employers,” says the study in the state’s latest Labor Market Review. “Reduced wages and hours were also enacted in attempts to weather the recessionary storm.”

While overall employment has grown since hitting bottom in January 2010, both the average work week and real wages have lagged behind. The recession ran from December 2007 though June 2009.

Written by economist Ashley Leach of the Department of Workforce Solutions, the study analyzes data from employer surveys on employment, hours and earnings in the private sector from January 2007 to March 2015.

Layoffs appear to have been far more common than reduced work weeks in New Mexico's goods-producing supersector, illustrated by this wood flooring manufacturer in Las Vegas, N.M., during the recession and its aftermath. (Greg Sorber / Albuquerque Journal)

Layoffs appear to have been far more common than reduced work weeks in New Mexico’s goods-producing supersector, illustrated by this wood flooring manufacturer in Las Vegas, N.M., during the recession and its aftermath. (Greg Sorber / Albuquerque Journal)

The study uses a rolling 12-month average to smooth out the data. As a result, its findings focus on a tighter time frame of July 2007 to September 2014.

Earnings trend parallels nation

New Mexico’s trend in private sector average hourly earnings is very similar to that of the nation, although the wage gap widened between the state and the nation.

Average hourly earnings have moved in a reverse direction to private sector employment gains and losses: When employment grew, earnings declined, and vice versa.

New Mexico’s real hourly earnings averaged $23.13 as of July 2007. Earnings declined to a short-term low in May 2008 before rising to a peak of $23.49 in November 2009.

Since that time, when adjusted for inflation, real hourly earnings have steadily declined, reaching a trough of $20.79 in September 2014, a drop of 11.5 percent.

Average hourly wages in New Mexico's private sector, which always lag national averages, get a boost from high-tech manufacturing jobs at companies, such as the former Eclipse Aerospace, now known as One Aviation, shown here. (Albuquerque Journal File)

Average hourly wages in New Mexico’s private sector, which always lag national averages, get a boost from high-tech manufacturing jobs at companies, such as the former Eclipse Aerospace, now known as One Aviation, shown here. (Albuquerque Journal File)

The decline is not surprising since real average hourly wages, when adjusted for inflation using the Consumer Price Index, have been gradually dropping since the 1970s, said Michael O’Donnell, research scientist at the University of New Mexico Bureau of Business and Economic Research.

The decline is likely influenced by a number of factors, such as the broad shift to an increasingly services oriented economy and the resulting change in the kind of jobs that are out there, he said. In simple terms, production jobs have traditionally paid more than clerical jobs.

Other factors might include downward pressure on wages from the globalization of the economy – competition from cheaper labor overseas, for example – and the role of technology and automation on worker productivity in different industries, he said.

Another factor in recent years, despite the apparent job growth, is there are still too many people chasing too few jobs, he said. The upshot is that employers may have the market power to keep down their pay rates.

“What could be happening is more relatively senior employees are leaving the workforce and are being replaced by newer workers at a lower pay scale,” he said. “We don’t know that for sure.”

Real hourly earnings in the professional and business services employment sector, which includes call centers like this one in Albuquerque, dropped sharply in New Mexico during the recession, then generally stabilized from 2010 and beyond.  (Albuquerque Journal File)

Real hourly earnings in the professional and business services employment sector, which includes call centers like this one in Albuquerque, dropped sharply in New Mexico during the recession, then generally stabilized from 2010 and beyond. (Albuquerque Journal File)

New Mexico’s average hourly earnings of $20.79 in September 2014 was 16.4 percent lower than the national average of $24.88, a pay gap that widened from 11.5 percent in 2007.

An in-depth explanation of why hourly earnings here trail the national average would involve researching differences in population demographics and migration patterns, industry composition, poverty and education rates, and other variables, said Workforce Solutions Department spokeswoman Joy Forehand in an email.

But generally speaking, New Mexico’s lower earnings are tied in part to a relatively lower cost of living, which results in “relatively less upward pressure on wages,” O’Donnell speculated. Also, the composition of jobs in the state is likely weighted more heavily on industries that tend to have lower wages, such as hospitality and retail.

“What’s sort of odd is that we also have a fair number of high-paying jobs in the state,” he said, citing as examples employment related to the state’s two national labs and the more high-tech end of the manufacturing sector.

“There’s surprising diversity/variation in terms of pay in New Mexico,” he said.

Average hourly earnings do not represent an employer’s total compensation costs, the study notes. They don’t include items such as employee benefits, irregular bonuses and commissions, retroactive payments and the employer’s share of payroll taxes.

A bubble in hours worked

The average work week in New Mexico peaked at 36.2 in November 2008, capping a run-up in hours that had begun a little over a year earlier.

“One of the reasons why this might have happened is that, as employers were shedding some of their less productive workers, they added hours to the workers who remained,” Mitchell said.

Since that 2008 bubble, average weekly hours have trended downward, hitting a low of 34.6 hours in September 2014, the study says. The trend likely reflects employers continuing to cut hours and lay off workers as the recession lingered.

The relatively slim difference between the 2008 peak of 36.2 hours and the 2014 low of 34.6 hours illustrates how little the average work week varies, noted BBER Director Jeff Mitchell.

As for a 40-hour work week, which many people consider standard, Mitchell said, “I’d be dumbfounded if it’s come close to 40 hours since Roosevelt was in office.”

The employer surveys include hours worked in part-time jobs, thus reducing average work weeks overall.

Another factor might include low labor force participation rates in the 1940s compared to today, although the participation rate has dropped from 67 percent in 2001 to less than 63 percent this year.

The impact of technology and automation on improving productivity may also contribute to the decline in average work weeks.

As it turns out, the 34.6 average weekly hours in July 2007 on the eve of the recession were roughly the same as in September 2014 – and identical to the national average at both two points.

“This is purely a coincidence,” Forehand said.

However, the U.S. average followed a different path from 2007 to 2014. There was no run-up or bubble in work hours early in the recession, but rather a straightforward decline that reversed course when the recession ended and the recovery began.

Goods vs. services

The two industry supersectors – goods-producing and service-providing – faced different challenges in the recession and recovery, according to the study.

“Employment losses were most severe in the goods-producing industries, with employment dropping over 14 percent between July 2007 and September 2014,” it says, noting that reductions in weekly hours in those industries “were not generally implemented as cost-cutting measures.”

On the other hand, reductions in weekly hours were common and deeper in the broad service-providing sector, which is more than four times the size of the state’s goods-producing sector. Since the spring of 2012, reduced work weeks appear to remain the norm even as employment has grown.

Goods-producing industries include construction, manufacturing, oil and gas production, and mining. Everything else, from banking and health care to warehousing and transportation, falls under the service-providing supersector.

The recession and its lingering after-effect had a proportionately bigger negative impact on employment numbers in the goods-producing supersector than the service-providing supersector.

Based on monthly CES survey numbers, goods-producing employment peaked statewide at 118,400 in October 2006 before dropping 25 percent to a low of 88,200 in February 2010. Since the low, employment has risen very moderately to 96,700 as of June.

As of this past June, service-providing private employment regained all of the supersector’s lost jobs, posting 542,000 workers to beat the pre-recession peak of 541,000 in December 2007. The supersector’s employment low was 505,900 recorded in January 2011.



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