Wage Growth Seen in Most Recent Quarter

October 23, 2017 – Overall wage growth increased by 1.7 percent year-over-year across all industries in the third quarter, according to the latest ADP Workforce Vitality Report.

The report tracks the same set of workers over time, which provides a more insightful picture of wage growth than overall wage growth.

This set of workers included job holders, who stayed in their same job for at least one year, and those who changed jobs, referred to as job switchers.

Job holders’ wages grew by 4.4 percent and job switchers’ wages grew slightly less by 3.3 percent year over year in the third quarter. On average, job holders’ hourly wage levels were $10 more than that of job switchers’. Tracking full-time workers alone, job switchers increased their wages by an average of 4.9 percent when compared to job holders, who saw their wages rise by 4.3 percent.

Considering wages across industries, the service sector proved to be more attractive for job switchers than the goods sector. Across most service industries, job switchers’ wage growth exceeded that of job holders. Full-time workers who switched jobs to the leisure and hospitality industry gained the most with a 6.9 percent increase in wages. Looking at those who stayed in their jobs, the information industry led the way in wage growth in the third quarter where job holder’s wages increased by 5.1 percent.

“Despite the deceleration we’ve been experiencing in overall wage growth we continue to see evidence of the strengthening labor market when you look at specific areas,” said Ahu Yildirmaz, co-head of the ADP Research Institute. “As employers strive to retain skilled workers, we see wage increases for full-time job holders in all sectors. Most notable are the information and construction industries.”

Growth By Sector

Labor market dynamics across all regions showed some variability. The average wage level for job holders in the Midwest was the lowest of all four regions with a rate of $27.14 per hour. This could be because of the weak goods-sector and relative cost of living in this area. Additionally, although the South had the lowest wage growth, it also had the highest employment growth which reflected the recent pattern of above-average economic growth the region experienced prior to hurricanes Harvey and Irma.

To summarize the trends across a variety of dimensions: The strongest wage growth was found in the West, the leisure & hospitality and information industries, among women and younger workers, workers with little job tenure and those employed by large companies.

Seasonal Hiring’s Impact

According to jobs website Glassdoor, the annual median base pay in the U.S. grew two percent year-over-year last month to $51,556. The pay growth ended a six-month stretch of deceleration. The Glassdoor Local Pay Reports show pay growth ticked up slightly from a revised 1.7 percent growth last month, ending a six-month stretch of deceleration.

“After six consecutive months of falling pay growth, workers got some positive news with a slight uptick in average wage growth to two percent,” said Dr. Andrew Chamberlain, chief economist at Mill Valley, CA-based Glassdoor. “We will be watching eagerly to see if this starts a trend in the opposite direction. We are also closely watching retail, and while the holiday season is still months away, retailers are already making preparations to fill short-term positions in time for the holiday buying rush. Jobs typically associated with this seasonal swing in hiring, including cashiers and warehouse jobs, are seeing above-average pay growth.”

Expectations of wage increases are higher for the latest quarter, according to a new Business Conditions Survey released by the National Association for Business Economics. The report found 47 percent believe wages will rise over the next three months. That’s up from 44 percent who expressed that view in a similar survey released during the second quarter. And when asked whether they had raised wages and salaries last quarter, 47 percent said they did.

Increasing Demand for Talent Spurs Steady Wage Growth
The U.S. labor market posted steady growth in wages in the second quarter, according to the newly released ADP Workforce Vitality Report. Overall, wage growth increased by 2.3 percent year over year across all industries in the second quarter of 2017.

 Wages Hold Steady, Talent Rewarded

According to some reports, however, wages are expected to slow. A new forecast by the Hay Group division of Korn Ferry revealed that in the U.S., a three percent salary increase is predicted for this year. Adjusted for the 1.1 percent inflation rate, the real wage increase is 1.9 percent.

According to a survey released by Willis Towers Watson, pay raises for U.S. employees are expected to hold steady at three percent. The survey also found that employers will continue to reward their best performers with significantly larger pay raises as they look for ways to retain their top talent and strengthen existing pay-for-performance cultures.

“Given the continued low rates of inflation and the ongoing pressure on profit margins, employers remain cautious when it comes to budgeting salary increases,” said Laura Sejen, managing director, rewards, at Willis Towers Watson. “While most companies are feeling little pressure to increase budgets relative to what we’ve seen in recent years, many are starting to question how those budgets are spent and whether their conventional approaches to salary planning are delivering a good return on that three percent investment.”

According to a CareerBuilder study, which polled human resource managers, 70 percent said their companies will have to start paying workers higher wages because the market has become increasingly competitive for the skills and labor needed. The report also found that more than half of employers will raise wages for current employees, while two in five will offer higher starting salaries on job offers in the second half of the year.

Among all employers (hiring managers and HR managers), 39 percent reported they will offer higher starting salaries for new employees over the next six months; 20 percent of all employers plan to increase starting salaries on job offers by five percent or more. More than half (53 percent) of employers plan to increase compensation levels for current employees before the year’s end and, similar to salaries on new job offers, 21 percent said the compensation increase for existing staff will likely be five percent or more.

“Where we’ll likely see a more noteworthy change is in the area of wages,” said Matt Ferguson, CEO of CareerBuilder. “The number of hires made each month continues to lag the number of jobs posted for key functions within organizations, and the majority of employers feel they will now have to pay workers more to attract and retain them because the talent supply is not keeping up with demand.”

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Will Schatz, Managing Editor – Hunt Scanlon Media