There is a tug-of-war between employers and employees over wage increases, and the outcome is crucial to the inflation outlook.
Average wage growth had begun to cool somewhat since the summer. But Friday’s jobs report showed annual hourly wage growth accelerated to 5.1% from 4.9% in October.
Workers continue to receive substantial pay rises, in part because help is hard to find: The unemployment rate remained at 3.7% in November, a low for nearly half a century. The labor force also shrank in November and is smaller than before the pandemic.
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Still, a drop in job vacancies and job changes has given some employers some breathing room in terms of raises for existing employees and opportunities for new hires.
Some wage indicators show a slight slowdown. The quarterly labor cost index rose more slowly in summer than in spring. And while the November jobs report showed rapid wage gains in one measure — average hourly earnings — there was no similar acceleration in weekly earnings because the average number of hours worked per week was falling.
“The frenzy of companies poaching each other’s workers has eased somewhat, but the trend in wage increases remains quite high and is not slowing significantly,” said Stephen Stanley, chief economist at Amherst Pierpont, a broker-dealer.
Higher wages are generally good for workers, but wage growth that consistently exceeds worker productivity growth can prompt firms to raise prices more.
The Federal Reserve depends on moderate wage growth to bring inflation back to its 2% target. Chair Jerome Powell said last week that there had been positive developments but the labor market was “showing only tentative signs of rebalancing and wage growth remains well above levels consistent with 2% inflation”.
Mike Pitts, president of IVM Inc., an Indianapolis technology supply company, has had to repeatedly raise wages to attract new employees, leading existing employees to request an increase in this account for experience.
“It’s this barrage of micro-strikes that just undoes your efforts to stay ahead of those wage increases,” Mr. Pitts said.
In January, IVM employees will receive a pay rise of up to 6.5%, which is expected to be in line with current core inflation, which excludes volatile food and energy components. But to reflect IVM’s efforts to squeeze productivity gains out of the pay rise, only employees who return to the office full-time are eligible for the full raise, with smaller increases for employees who want more remote options.
“We’re trying to give them the flexibility to say, ‘Hey, I want to do more, so I’m going to try to make the company more productive,'” Mr. Pitts said.
Nevertheless, companies are less urgently short of workers than at the beginning of this year. In October, job vacancies were 7% lower than in the same period last year.
Employers are more cautious about wages, including for those working during the busiest holiday periods.
Photo: Yuki Iwamura/Agence France-Presse/Getty Images
A common way workers earn higher wages is by changing jobs. Wages for job-changers rose 7.3% in the 12 months to October, compared with 5.3% for non-changers over the period, according to the Atlanta Fed.
But job turnover has cooled along with job growth, with 2.6% of workers quitting their job in October, compared with 3% in December 2021, the highest level on record. “Employers are starting to feel overwhelmed, so they’re backing off a bit,” said Nick Bunker, an economist at Indeed, a job search platform. “That means there are workers who don’t quit their old job, which in turn means there’s less demand for employers to fill those jobs, so there’s less opportunity for people to switch.”
Angeline Hanser, 19, was hired as a warehouse clerk at a home goods store in Rochester Hills, Michigan in January but says her duties have grown over the year to take and pack orders and serve as a cashier. Mx. Hanser, who uses non-binary pronouns, said that given those extra responsibilities, at $14 an hour they “are not doing what I’m supposed to be.”
Still, a pay rise may not be in sight, and they said even the holiday pay arrangements have changed significantly from last year. While last year employees could get extra pay for working during the busiest holidays — like Black Friday — this year the store is paying out $150 in bonuses when it hits certain sales thresholds for the season.
Nevertheless Mx. Hanser has agreed to come at 4am on Black Friday and has no plans to look for a new job.
“It’s a bit stressful going out and finding another job,” they said. “There aren’t many jobs near me. Everything else could be half an hour to an hour away.”
Businesses across the economy are becoming more cautious about payment. Many gravitate towards one-time bonuses for high performers while limiting larger pay increases to the most in-demand positions.
Despite lower short-term demand for labor, a reduced long-term labor supply as a result of lower immigration and an aging population will allow desirable workers to continue demanding wage increases. Meat processor Tyson Foods Inc. warned investors in its annual report in October that a tight labor supply could require higher wage rates to attract and retain employees.
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Boyd Group Services Inc., which operates auto repair shops in the US and Canada, similarly said in November that despite some progress on its hiring and retention goals, “continued [compensation] Increases are needed to meet ongoing wage pressures on the skilled mechanics and technicians employed there.
“During the recovery there were pay increases for everyone,” said Becky Frankiewicz, chief commercial officer of ManpowerGroup Inc., a staffing services company. “Now it’s going to be for some wage increases, and they’ll be defined by those with the most in-demand skills.”
Write to Gabriel T. Rubin at [email protected]
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