Wages Increase Seen in Most Recent Quarter

November 22, 2019 – Wages for U.S. workers grew 3.2 percent over the last year, increasing the average wage level by 90 cents to $28.71 an hour, 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. The wage growth of 3.2 percent corresponds to the BLS numbers of 2.9 percent which was released earlier this month.

“The labor market has shown signs of a slowdown,” said Ahu Yildirmaz, co-head of the ADP Research Institute. “After accelerating at the start of 2019, annual employment growth has leveled off to a modest 1.7 percent in September. While job switchers continue to enjoy wage growth of 5.1 percent, employers appear to have reached the limit of what they are willing to pay workers to entice them to switch jobs.”

Job switchers receive an average wage increase of 5.1 percent when they moved to a new employer. Wage growth for job switchers varies significantly across industries (ranging between negative three percent to 10 percent). Construction, finance, information and some parts of the professional services industry are still outperforming the overall average.

Growth by Region

The ADP report found that workers in the Midwest outpaced other regions with 3.9 percent wage growth although the hourly wage rate was the lowest at $26.76. This region also experienced the lowest employment growth at 0.9 percent. Job switchers fared best in the West experiencing a wage growth of 6.6 percent. The workers in the South had the lowest wage growth at 2.9 percent. By firm size, workers at large firms had the highest wage growth rate at 4.1 percent, with employment growth at 3.2 percent.

“Full employment is upon us,” said Mr. Yildirmaz. “This is evident in the gradual slowdown we’ve seen in overall job switching for the past year, coupled with an acceleration in wage growth for switchers. As the labor market tightened, employers focused on providing the pay and benefits that would attract and retain skilled talent, making job holders less apt to switch.”

Larger Raises Coming

U.S. employees hoping for larger pay raises next year may be disappointed. A new survey by global advisory, broking and solutions company Willis Towers Watson reports U.S. employers plan to hold the line on budgeted pay raises in 2020, despite low unemployment. Some employers, however, are projecting modestly larger discretionary bonuses next year, while others are adding separate promotional budgets in their efforts to supplement employee salaries — with the goal of rewarding top talent.

Willis Towers Watson’s 2019 General Industry Salary Budget Survey found salary increases are expected to hold steady in 2020 for exempt, non-management employees (3.1 percent), management employees (3.1 percent), nonexempt hourly employees (three percent) and nonexempt salaried employees (2.9 percent).

Related: Mixed Salary Growth Persists After Great Recession

“Despite an extremely tight labor market, most employers are either not willing or fiscally unable to increase their fixed costs across-the-board by bolstering their salary budgets,” said Catherine Hartmann, North America rewards leader at Willis Towers Watson. “Instead, many companies are doubling down on providing significantly larger market adjustments to employees in high-skill roles and selective pay raises to their top performers. Some employers are also recognizing the contributions of these employees with better annual incentives and discretionary bonuses.”

Contrasting Findings

Salaries for highly skilled workers could boom in coming years as global talent shortages take hold, according to a report by Korn Ferry. Left unchecked, the salary surge could add $2.5 trillion to annual payrolls globally by 2030, jeopardizing companies’ profitability and threatening business models.

“The new era of work is one of scarcity in abundance: There are plenty of people, but not enough with the skills their organizations will need to survive,” said Bob Wesselkamper, global head of Korn Ferry rewards and benefits solutions. “While overall wage increases are just keeping pace with inflation, salaries for in-demand workers will skyrocket if companies choose to compete for the best and brightest on salary alone.”

Win the War of Talent with Job Security Over Pay
Pay matters, but if that is all your company has to offer your employees, don’t be surprised if they walk away, says a new study by Randstad. Many workers want job security, and would even take a pay cut to get it.

Korn Ferry’s Salary Surge study estimated the impact of the global talent shortage, as identified in Korn Ferry’s recent Global Talent Crunch study, on payrolls in 20 major global economies at three milestones: 2020, 2025 and 2030, and across three sectors: financial and business services; technology, media and telecommunications (TMT); and manufacturing. It measured how much more organizations could be forced to pay workers, above normal inflation increases.

Related: Wage Growth Seen in Most Recent Quarter

The U.S. faces the biggest wage premium, estimated to reach $296.48 billion as early as 2020, and rising to $531.25 billion by 2030. The term wage premium refers to the additional amount employers will need to pay over and above the amount that wages would rise over time due to normal inflation to secure the right talent.

Although major economies can expect the highest wage premiums, smaller markets with limited workforces will feel the most pressure, the Korn Ferry report said. By 2030, Singapore and Hong Kong — small economies with important financial centers — are forecasted to face a wage premium equivalent to about 10 percent of their respective 2018 GDPs. By comparison, the U.K.’s wage premium may be equivalent to five percent of 2018 GDP by 2030, while France’s wage premium may reach four percent of its 2018 GDP.

For companies that make the effort to upskill their existing workforces, there is an added bonus: “Employees who are connected to an organization’s purpose and feel they can make a meaningful contribution are much more likely to stay, even if they’re offered a higher salary elsewhere,” said Mark Thompson, senior client partner, reward consulting, Korn Ferry. “After all, in the future of work, employees who are adaptable and willing to learn, with enough flexibility to handle a rapidly shifting working environment and less-hierarchical structures are the ones with the most potential to succeed. In sectors and economies where there’s a surplus of mid-skilled and low-skilled workers, there is ample opportunity for development.”

Related: Despite Drop in Unemployment, Wages Remain Concern for Many Workers

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