DES MOINES -- Iowa’s unemployment rate is at its lowest in nearly two decades.
But not everything in the state’s economy and workforce is working this Labor Day weekend.
Most notably, while the rate of unemployed Iowans continues falling to historical lows, wages have not been increasing.
“By most measures that we usually care about, the Iowa economy looks like it’s doing really well right now. There’s low unemployment, so a lot of people are holding down jobs,” said David Swenson, an economics professor at Iowa State University. “It’s the kind of economy that we would expect to produce some things like rising wages, and businesses normally would have to be working to attract employees and keep them. But we’re not actually seeing that right now, which is kind of mysterious.”
Iowa’s unemployment rate in July fell to 2.6 percent. That’s the state’s lowest in 18 years and well below the national average of 3.9 percent. More than 13,000 additional Iowans are working compared to one year prior, according to the state.
Such low unemployment usually drives up wages, economists said. But that’s not happening in Iowa or across the U.S.
In fact, real average hourly earnings decreased .2 percent from July 2017 to July 2018, according to federal data.
The lack of wage growth has befuddled state economists.
“Pay is not going up very fast and I still don’t know why,” said William Boal, an economics professor at Drake University. “It’s a tight labor market but we haven’t really seen the rise in pay. Economists have been waiting for it for five years now. Exactly why it’s so tight, it’s hard to say. ... Hopefully that’s coming.”
Boal said employers may be hesitant to commit to higher wages because the state’s agriculture-based economy is vulnerable at a time when international trade negotiations are driving down crop prices.
“Hopefully that storm will pass and employers will really commit themselves to providing better pay and benefits,” Boal said.
Meantime, the cost of living continues to rise, even if wages do not.
“People are really feeling like they’re falling behind in terms of their income and their spending power, even though other economic indicators look good,” said Jennifer Sherer, with the University of Iowa’s Labor Center. “The benefits of the productivity gains and the profit gains are not being returned to workers in aggregate, especially in Iowa.”
Swenson said despite the low unemployment, which typically leads to businesses having to compete for workers, there appears to be no pressure for employers to raise wages. He said part of the reason may be because many people are working two or three jobs in order to make ends meet, which he said also is not typical during times of low unemployment.
“We have very low unemployment but no rising wages. Most economic theory says that can’t happen, yet that’s what we’re seeing,” Swenson said. “We’re just watching these continued (monthly) job reports to see some kind of shift, to see if suddenly wages do start rising or to see if the unemployment number starts slipping. It seems like what is currently happening is unsustainable, and something’s got to give. And it’s probably going to happen soon.”
Kim Becicka, the vice president of education and training services at Kirkwood Community College in Cedar Rapids, said she has observed a tightening of Iowa’s labor market as well. But she does think employers are looking for ways to recruit and retain employees.
Becicka said employers also continue to say there is a lack of middle skill workers in Iowa. She said Iowa community colleges are working with employers in their respective areas to tailor programs and produce workers that are prepared for jobs in their region.
Kirkwood, for example, is working with a group of manufacturing and processing employers that are struggling to find qualified workers for operator-level positions.
“Even at 2.6 percent (unemployment) we do have individuals in the state of Iowa who want to work and they do not currently possess the skills,” Becicka said. “We’re very engaged working directly with employers to ensure we have the training programs available to help with their talent pipeline.”
Becicka’s hope is that these job training and education programs help not only now while there is low unemployment, but especially in the future should that number start to rise again.
“At some point we will see a downturn,” Becicka said. “Our hope is this work and these partnerships will continue in that time so when the economy comes back we’re ahead, not trying to catch up like we have been (in recent years).”
Boal expressed his own concern about what might happen in the next economic downturn. He said recent changes to state law, in particular the elimination of most collective bargaining rights for public employees, could hurt workers when it comes to a point when there are far more unemployed Iowans competing for fewer jobs.
“The usual protections are weaker than they used to be, at least for unionized labor,” Boal said. “Which is not a problem in a boon market. But in the next recession, it’s probably going to be unpleasant.”
Sherer said the collective bargaining changes and limits put on worker’s compensation laws have created some uncertainty and disparities in Iowa’s workforce. She said because of the collective bargaining changes, especially, workers no longer can plan ahead for benefits they had grown accustomed to in their contracts.
What I hear a lot from people is a real sense of uncertainty: ‘There used to be a contract in place where I would know next year or two years from now what kind of benefits and what kind of time off I would be able to plan for, and now I can’t plan for that,’” Sherer said.