Asking Google For A Raise

By admin_45 in Blog

Even with record low US unemployment in recent months, the current economic expansion has failed to deliver wage growth on par with the last cycle. The data:

• In late 2008/early 2009 (November, December, January) average hourly earnings grew by 3.6% year-over-year. The peak for the current cycle was in February 2019 at 3.4%, and recent months show declining monthly comparisons to 2018. Last month’s reading was 3.1%.
  
• The prior cycle peak for growth in weekly earnings was March 2007 at 4.0%. The current cycle peak was September/October 2018 at 3.6% and last month was 2.8%.
  
• For just workers in non-supervisory/production roles, the story is the same. In the prior cycle, hourly/weekly earnings growth peaked at 4.2%/4.6%; in the current one the peak comps are 3.5%/4.0%.

That got us thinking about the actual mechanism that creates wage gains: employer/employee conversations about pay and benefits. Only 11% of American workers belong to a union so the other 89% must, logically, negotiate their own pay packages. And since the average US worker stays at their employer for a little over 4 years, they have multiple chances to discuss wage increases during annual reviews or when they feel a raise is in order.

We went to Google Trends and researched US search volumes for 2 phrases: “ask for a raise” and “get a raise”. Our logic: before someone walks into the boss’ office to talk money, they research how to go about it. That should make Google searches a leading indicator of overall wage increases. We have 2 cuts at this data, and 2 graphs to share.

#1: The 5-year record (i.e. just the current cycle):

• Search volumes for “ask for a raise” are dead flat over the last half-decade.
• “Get a raise” has seen some growth lately, up by 20% in Q4 2018 versus 2017, which fits neatly with the peak for weekly earnings growth noted above.

#2: The 2004 – present record (cross cycle analysis):

• Search volumes for “ask for a raise” are flat for most of the period from 2004, and the Great Recession is clearly visible with a +50% decline from 2007 to 2009. It has taken until 2019 to see better search volumes than the last cycle.
• “Get a raise”, by contrast, shows steady non-cyclical growth. In 2009 it became a more popular search than “ask for…” and “get” now sees 50% more searches than its counterpart.

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Where things get really interesting is when you geo-locate “ask…” and “get” Google searches from 2004 - now, because there are wide state-level differences in the two terms:

• States where “ask for a raise” is most common: New York, DC, California, Massachusetts and New Jersey, at 48% - 49% of total searches between the 2 terms.
• States where “get a raise” is most common: West Virginia, Arkansas, Mississippi, New Mexico and Idaho, each at 100% share of the 2 search terms.

As for what we take from this analysis, 3 points in conclusion:

#1: The Great Recession cast a long shadow on more-educated workers, even if they did not directly experience unemployment. Those 5 “ask for…” states (NY, DC, CA, MA, and NJ) all have notably higher levels of college-educated workers (35% - 57%) than the national average (31%).

They should be in a stronger position, given extremely low levels of unemployment for college-educated workers, to bargain for better pay. Only now, however, is this cohort peaking out from under its shell and more aggressively pursuing pay increases.

#2: The steady increase in “get a raise” queries is a positive for both non-college educated workers and the American economy. The states where that search is more prevalent (WV, AR, MS, NM and ID) have fewer college-educated workers (20% - 27%) than the national average.

Since non-college educated workers have lower labor force participation rates than the national average – 45% to 58% versus 63% – Google queries that evolve into that population seeing better paychecks may well draw marginal workers into the labor force. And, of course, boost wage gains as well.

#3: We suspect Chair Powell and the Fed fully understand the problem that subdued wage growth represents, even if inflation is now lower than the last cycle. Their 2% inflation target is only socially acceptable if wage growth compounds at 3% or better across a business cycle. Even then, it would take +70 years for living standards to double, but that’s better than seeing them unchanged or decline.

So while we don’t think the Fed looks at Google search trends, the message they send should resonate with policymakers: the recovery from the Great Recession has only just started for many Americans. Keeping it going will finally give workers confidence to ask for a raise and/or come back into the labor force.