Labor market tightens, but 'abrupt' wage growth unlikely
- Analyses of historical state wage-growth and unemployment data do not predict an abrupt jump in U.S. wage growth due to a tight labor market, according to a Jan. 14 economic letter published by the Federal Reserve Bank of San Francisco. "We do not foresee a sharp pickup in wage growth nationally if the labor market continues to tighten as many anticipate," researchers said.
- Researchers said they looked at state data because U.S. states regularly experience unemployment rates lower than 4%. Therefore, they said, this data can be used to better determine whether wage growth rises sharply when labor markets turn hot at the national level.
- The letter concluded there is no evidence of a meaningful increase in wage growth as unemployment rates fall below 4%, though it did note that certain differences exist between assessing local and national labor markets. "As a result, geographical labor mobility — which can mute wage pressures in tight markets as workers are attracted to higher-wage areas — may be playing less of a restraining role," researchers said.
The findings call into question the premise that employers will raise wages as a way to compete in a tight labor market. Strong demand for workers should push up wages, yet, while wage growth has increased since the end of the Great Recession, the increase has been surprisingly modest relative to the pace of labor market tightening, researchers said.
U.S. wages grew 3.5% in 2018 over the last year, increasing U.S. average pay by 95 cents to $27.81 an hour, according to ADP's Workforce Vitality Report. The report showed that American workers earned on average $1.00 more, as of September 2018, than they did last year at this time. Projections for wage increases in 2019 are in the 2.8-3.0% range.
Employers looking for summer seasonal workers in 2018 reported that they were increasing wages, facing fierce competition for employees. Nearly half of employers (46%) looking for summer hires said they were raising wages to compete for talent, according to a Snag survey. Employers in the same survey said they were also offering more full-time jobs and healthcare and paid time off benefits to attract talent. Respondents to Snag indicated they were offering higher-than-mandated wages: a majority (74%) said they planned to pay a wage of $11 per hour or more, compared to 53% of employers in the survey's 2017 edition.
Research supported similar findings for holiday hiring last year. Snag's 2018 Annual Holiday Hiring Survey indicated that employers, especially retailers, expected a robust holiday season and fierce competition for skilled applicants. The survey indicated that hourly wages for seasonal workers would rise by 32%, from $11.70 in 2017 to $15.40 in 2018. The biggest growth was predicted for retail, with wages rising by 54%, followed by hospitality (51%), and the restaurant industry (33%).
Many employers aren't planning to increase wages significantly in 2019. But if employers won't raise wages in a competitive job market, employees are voting with their feet by opting to job hop to find higher wages. An ADP report released in July 2018 found job switchers made noteworthy gains in wages over the past year.