Workforce Dynamics: Wage Growth Slows In Second Quarter

July 27, 2016 – The U.S. labor market maintained its trend of growth in wages in the second quarter but at a slower pace, according to the ADP ‘Workforce Vitality Report.’ Gains in the second quarter were driven by growth in hours worked and employment.

The report tracks a set of full-time workers to determine wage growth among those who are consistently employed. This set of full-time workers falls into two categories: job holders and job switchers. Job holders are those who stay in the same job, and job switchers are those who change jobs.

Tracking the same set of full-time workers, according to ADP, leads to a truer picture of wage growth among those who are consistently employed. Full-time job switchers fared better than job holders. Their wage growth rate slowed slightly, whereas holders’ growth rate slowed by more than a percentage point from the previous quarter on a yearly basis. Wage growth on a year-ago basis was moderate largely because of an unfavorable year-ago comparison.

Wages Reflect Tightening Labor Market

“The positive trend in wage growth over the past few quarters suggests that wages may finally reflect the tightening labor market,” said Ahu Yildirmaz, vice president and head of the ADP Research Institute. “Employers are continuing to provide raises to their workers for retention.”

Wage growth for full-time workers varied across industries during the past four quarters. Wage growth slowed in every industry but remained strong in most, with the exception of natural resources and mining.

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The information industry continues to lead the way in terms of wage growth at 6.5 percent. This industry is made up of many highly paid, well-educated workers who are valued and in short supply. Indeed, among all industries wages are highest in information. Among full-time switchers, workers switching from leisure / hospitality and trade gained the most. This is not surprising, as there are more low paying jobs in these industries and even little increase in wages would translate to a considerable growth because of their lower wage base.

Job switchers who move from a part-time to a full-time job garner a negative hourly wage growth. This is more or less true across all industries. This suggests the availability of benefits and more hours lead to increased take home pay and the stability of a more permanent job weighs more heavily than the hourly wage alone.

Wage Growth by Industry

Workforce dynamics vary considerably across regions as well. The region that remains the strongest is the West, which despite exposure to commodities and the high dollar, benefits from strong demographics, booming tech, tourism and international trade, and a recovering housing market. The West leads other regions in terms of wage growth of holders, though growth has slowed in this region as well as in all others. Employment growth has seen a similar slowdown and during the past year employment in the West and South grew by 2.5 percent and 2.3 percent, respectively. These are far above the Northeast with 1.6 percent growth and the Midwest with growth of just 1.4 percent.

Growth by Region

Wage growth for job holders is strongest for those with three to five years on the job: during the past year it increased by a respectable 4.2 percent. Those with two years or less earned 3.8 percent more during the four quarters ending in the second quarter. Those with five to nine years saw a modest increase of 3.4 percent, while growth slowed measurably, to 2.2 percent, for those with more than 10 years tenure.

Year over Year Wage Growth by Tenure

Despite wages slightly climbing, workers still feel that they need to change jobs to get a decent pay raise.

More than half of employees globally (56 percent) believe they must switch companies in order to make a meaningful change in their compensation, according to the ‘Global Salary Transparency Survey‘ released by Glassdoor.

In another study released by Penna48 percent of people claimed the main reason for a job change was that they were searching for better pay and benefits. Of those, the survey found that employees aged 18 to 24 were the most likely to be planning a move this year, while 25 percent of those aged 25 to 34 are considering leaving their posts.

And with hiring remaining competitive, companies may be feeling increased pressure to stay competitive with compensation.

A recent study by CareerBuilder revealed that while 25 percent of employers anticipate no change in salary levels in the second quarter compared to the same period last year, 25 percent expect to boost salaries by at least five percent. Forty four percent anticipate there will be an increase of four percent or less while two percent expect a decrease and four percent are undecided.

From the employee perspective, workers are confident looking ahead when it comes to the job market, job security and pay raises, according to Glassdoor’s first quarter ‘Employment Confidence Survey.’ Nearly half (46 percent) of U.S. employees expect a pay raise or cost-of-living increase in the next 12 months.

According to the Korn Ferry Hay Group ‘2016 Salary Forecast study,’ workers are expected to see wage increases of 2.5 percent, the highest in three years.

“This year’s global salary forecast shows that for the majority of countries real wage increases in 2016 are set to be the highest in three years,” said Philip Spriet, global managing director for productized services at Hay Group. “Differing macro-economic conditions means there are stark variations globally, but overall decent pay increases, coupled with extremely low (and in some cases, zero) inflation, mean that the outlook is positive for workers.”

Contributed by Scott A. Scanlon, Editor-in-Chief, Hunt Scanlon Media

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