Pay raises are now higher for workers who didn't go to college: Oxford Economics

In another sign of a tightening job market, pay raises for workers with just a high school diploma have surpassed those of college graduates by a record margin, according to a recent report by Oxford Economics.

“Over the last two months, they received a median average annual pay raise of 3.7% compared to 3.3% for workers with a bachelor’s degree,” Bob Schwartz, Oxford Economics senior economist, wrote in a recent note to clients. “In this job market, you don’t need a degree.”

As workers in the hospitality industry have resisted returning to their old low-wage jobs, employers are luring workers with raises and bonuses. Average hourly earnings for workers in leisure and hospitality have increased from $16.55 in June 2019 to $18.23 in June 2021.

“Employers [are] actually loosening requirements in terms of degree requirements...because everything right now ties back to labor shortages,” said Glassdoor senior economist Daniel Zhao. “Many employers [are] having difficulty finding or retaining workers and so employers are getting more creative about what workers that they would consider as candidates.”

A "Now Hiring" sign is posted in the drive thru of a McDonald's restaurant on July 07, 2021 in San Rafael, California, as labor deamnd leads to pay raises. (Photo by Justin Sullivan/Getty Images)

Zhao anticipates this wage growth trend will continue “for some time” as understaffing still plagues industries like leisure and hospitality, which rely heavily on workers without a college degree.

“The labor market should continue to remain tight even as the economy reopens, because we can’t just flip a switch and have the millions of unemployed Americans on the sidelines now return to the labor force,” said Zhao. “It’s going to be more of a slow trickle.”

Pay raises won't last forever

Employment in leisure and hospitality is down by 2.2 million, or 12.9%, from its level in February 2020, according to federal data. While workers with just a high school diploma have been seeing more pay raises compared to college graduates, the overall career earnings of college graduates are more than twice as high as for those without a bachelor’s degree.

“It’s unlikely that we’re going to be in this kind of situation for long enough that workers without a college degree start out-earning workers with one,” said Zhao. “But it certainly does change the economic calculus. For many people, a college degree is a significant leg up in the labor market, but it is also a very costly decision.”

Student loan debt has reached $1.4 trillion and policies surrounding repayment or cancellation continue to be a political football.

Oxford Economics’ recent pay data “might change people’s decisions around what degree they choose, what kind of school they go to, [and] whether they look for something more like a community college degree, which is often cheaper than a four-year degree,” said Zhao.

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