Wages Flatline Even With Record-Low Unemployment

Low unemployment rates should translate to a boost in wages ... right?
By: | August 22, 2018 • 3 min read

Despite the near-record low unemployment rates, worker shortages and competition for top talent, wages have remained stagnant. Indeed, last week, we shared the results of two salary surveys from Willis Towers Watson and Mercer, both of which came to similar conclusions: employees may see minimal salary/merit increases in 2019. Right now, those projections seem out of reach based on our current economic climate.

According to Bloomberg Business Week, wages in July shrank, which has baffled financial services experts. Inflation rates are the likely culprit: cost-of-living increased to 2.9 percent from July 2017 to July 2018 compared to 2.7 percent increase in earnings during the same time frame.

“The lack of wage growth has befuddled economists and policymakers, who hoped that after job openings hit record highs and the unemployment rate dipped to the lowest level in decades, employers would give beefy raises to attract and retain workers,” said Heather Long, an economist correspondent for The Washington Post. “But so far, gains have been slight, and small recent increases are being eclipsed by rising prices.”

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A Pew Research analysis of the usual weekly earnings of employed, full-time wage and salary workers revealed that from 1979 to 2018 the median usual weekly earnings rose from $232 to $879. Sure, it’s an increase, but as the Pew report points out “in real, inflation-adjusted terms, the median has barely budged over that period: That $232 in 1979 had the same purchasing power as $840 in today’s dollars.”

In an effort to better understand these strange wage woes, Bloomberg Business Week examined construction, long-haul trucking and child-care—three industries with high labor shortages and low wages. For child-care and construction workers, employers lament about labor shortages, but in the same breath say they either want to “hold out” pay raises at a percentage that barely covers cost-of-living increases or won’t offer pay increases at all.

According to Alan Johnson, managing director of compensation consulting firm Johnson and Associates, part of the reason for stagnant wages is a shift in how employers think.

“Decades ago, employers took a broader sociological view to determine if the real wages of their employees were going up over time,” says Johnson. “Now, employers see wage growth as something out of their control. They may be reasonably competitive with wages or benefits, but it may only be okay for employees, not great. And they think ‘I can’t do much about it because it’s out of my control.’ ”

Another issue inherent in the U.S economy is how politicized talk about jobs and compensation has become—for decades, politicians have talked about how they’ll grow the economy with better jobs and higher wages, but this growth hasn’t actually happened.

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“A real fix will take 20 to 30 years,” he says. “No one will talk about that because to win elections you need an immediate fix. Politicians don’t want to discuss the real underlying wage issues because it would be admitting that they’ve dropped the ball and will take decades to fix it.”

Laury Sejen, managing director at Willis Tower Watson, says something to pay attention to is whether the inflation rate surpasses 3 percent.

“There’s a correlation between rate of inflation and salary budgets,” Sejen says. “Usually salary budgets run a fraction of a point ahead of the inflation rate. If inflation starts picking up above 3 percent, then employers may see the need to push the budgets up a little more.”

Even though base compensation continues to be the top driver of attraction and retention, other factors come into play, too. Sejen says workers are seeking out career enablement opportunities—they want to learn new skills, develop their careers and have a chance for advancement. Companies that may not want to move the needle on base pay could create a more solid employee value proposition that shines light on these types of programs.

“Healthcare has become a lot more expensive, so companies are using their health and physical well-being programs as a way to attract and retain employees,” Sejen says. “Likewise, they also push financial wellness benefits, including retirement savings accounts.”

Danielle Westermann King, staff writer for HRE, received her bachelor’s degree in English from Temple University. She has written and edited articles for various print and online healthcare publications and is now setting her sights on human resources. She can be reached at [email protected]

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