Okay so the ADP numbers just came out and apparently it was fantastic news; more than 200,000 jobs were created in February.
Yep, now is the time to pop the Champaign (just pay for it on your credit card) and celebrate the fact that there is no way that with these numbers that the U.S. is headed for a recession. With these job gains how can the great industrial machine fail?
Okay if you didn’t get my sarcasm at the beginning then let me be straight with you. Now might not be time to celebrate so just put the cork back on the bottle and go try and get your money back because you just might need it.
Well the headline number look great but let’s take a look under the hood and see just what condition the labor market is in. The thing that stands out for me is that all the job gains were made in the service sector. The service sector created 208,000 jobs last month! At the same time the manufacturing sector, which has a lot of hig wages, lost 9,000 jobs.
This is an important realization because the service sector mostly pays minimum wage – okay, if you work in a restaurant you might get some tips. A person can barely survive on minimum wage and forget about raising a family.
First I need to mention that each state sets its own minimum wage so while I will use an average number, realize that wages do range, depending on where you live. The website, raisetheminimumwage.com, shows that 21 states are tied for having the lowest minimum wage, at $7.25 an hour in 2015. Washington D.C. actually has the highest clocking in at $10.50 an hour last year. We are going to be a little generous and say that the average across the country is $8 an hour (for the math geeks it is actually $7.95 but who doesn’t deserve a raise).
Okay you are making $8 an hour and let’s say you are lucky enough to work 40 hours a week – five eight hour shifts – your weekly salary (before taxes) is $320. Your annual salary is $16,600. Even if you clear $100 in tips in the week your annual salary only increases to $21,840.
You can’t even afford to live in Cincinnati, Ohio, which according to business insider has the lowest annual cost of living at $25,403.
If you are a couple your combined annual salary would be between $33,200 and $43,680. A couple could just about live in the most expensive city, which is San Francisco with an annual cost of living coming in at $43,581.
I do realize that this is an extreme scenario and it isn’t all doom and gloom. Last month the federal government said that the average hourly earnings for all employees was around $25.39 dollars but that includes all jobs in the labor market. I am just looking at a section of the service sector.
However things do need to change out in the economy because, while my scenario is extreme, it is probably a reality for some. You hear the stories of people having to work two or three jobs to make ends meet.
If people are making $8 an hour they are going to end up consuming less good and for an economy that is based on domestic consumption that is not good news.
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