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Who earns more: Service providers or goods producers?

Since the pandemic and its recession, service sector earnings have risen relative to the goods sector

The FRED Blog has discussed the demand and supply sides of the ongoing labor market shortages. Today, we examine the potential impact those shortages may have on labor compensation. That is, does the current level of job openings have an effect on earnings?

The FRED graph above plots data from the monthly Establishment Survey, which comes from the U.S. Bureau of Labor Statistics’ Current Employment Statistics program. It shows the average weekly earnings of all employees on payrolls in the service industry relative to those of employees in the goods-producing industry. The data are seasonally adjusted, so changes caused by seasonal factors such as back-to-school retail sales won’t distort the comparison.

The data (from March 2006 through September 2021) show that, until March 2020, for each dollar earned by a goods-producing employee, a service-providing employee earned approximately 78 cents. The COVID-19 pandemic, the recession it induced, and its aftermath changed that proportion. As of September 2021, for each dollar earned by a goods-producing employee, a service-providing employee earned approximately 81 cents. That’s almost a 4% increase.

Although we can’t put forward any single reason for the change in relative earnings, recent research by Sang Yoon Lee, Minsung Park, and Yongseok Shin looks at the unequal effects of the COVID-19-induced economic shock on the labor market. The authors find significant differences in employment across industries, occupations, and place of residence.

How this graph was created: Search for and select “Average Weekly Earnings of All Employees, Private Service-Providing.” From the “Edit Graph” panel, use the “Edit Line 1” tab to customize the data by searching for and selecting “Average Weekly Earnings of All Employees, Goods-Producing.” Last, create a custom formula to combine the series by typing in “a/b” and clicking “Apply.”

Suggested by Diego Mendez-Carbajo.

View on FRED, series used in this post: CES0600000011, CES0800000011


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