America’s workers may be finally in line for a decent raise.
After five years in which annual wage increases have averaged around 2 percent, salaries are set to pick up as a taut job market prompts more employers to boost pay to retain or add the workers they need, economists said.
“This will be the first time in a long time — and I’m talking a long time — that workers will see real wage inflation of some magnitude,” said Jonas Prising, chief executive officer of ManpowerGroup Inc., the Milwaukee-based staffing company with more than $20 billion in revenue last year.
That’s good news for Federal Reserve Chair Janet Yellen and her colleagues, who are counting on a tight labor market to lift wages and below-target inflation as they gradually raise interest rates. It’s less welcome for company executives and investors as higher compensation will eat into profits. Wagesaccount for around two-thirds of companies’ costs.
“We may be seeing some incipient signs of faster wage growth,” Yellen said at a press conference on Dec. 16 after the Fed increased rates for the first time since 2006. There is “space for wage growth to be higher than it’s been.”
Behind the anticipated rise in pay: a steady fall in joblessness to a seven-year low of 5 percent from a 26-year high of 10 percent in 2009. As a result, there are now 1.5 unemployed job seekers for every posted opening. That’s down from a 2009 high of 6.8 and is below the level that prevailed at the end of the last economic expansion.
“There is a more competitive labor market out there,” said St. Louis Fed President James Bullard, citing anecdotal evidence from around his district and talks with company executives on the bank’s board.
Company leaders “tended to think that 3 percent was a reasonable number for expected wage gains in 2016,” Bullard told reporters on Nov. 6. “There are a wide variety of businesses represented there, but they all said the same thing.”
Some workers, especially those willing to switch employers, already are reaping the benefits of the tighter labor market. The quits rate, which shows the willingness of employees to leave their jobs, was 1.9 percent in October, up from 1.3 percent in 2009 and just marginally below the 2 percent average of the last expansion.
Financial adviser Davi Kutner said he received a “significant increase” in pay with the opportunity for more when he left his employer of 10 years in July for a new position at an Atlanta-based accounting firm.
“I really didn’t put myself out into the market,” said Kutner, 37, who is married and has three children. “I have networked with a few people and this opportunity came up.”