American wage and job growth to chill this fall, warm by year-end
American wage growth in 2021 has been the most robust in 20 years, spurred by economic reopening as workers get vaccinated, according to economic research group The Conference Board.
But that may be about to change.
That spurt of American wage growth may be about slow despite continued labor shortages in some businesses and the reluctance of some workers to return to the labor force, evidence from several sources shows.
According to the Bureau of Labor Statistics’ Employment Cost Index, wages and salaries for private industry workers rose 4.3 percent (annualized) during the six-month period ending June 2021 — much higher than the average of 2-3 percent during the past two decades.
Liked the scorching weather, heated American wage growth continued through summer 2021, especially for blue-collar and manual services jobs. These workers were in high demand as the economy reopened. This came as pandemic concerns — fear of infection, lack of childcare — continued to keep many out of the workforce.
Faster American wage growth could have a significant impact on consumer and producer price inflation. If higher costs are passed through to consumers, this could lead to a longer period of high inflation, according to The Conference Board, while other sources project recent price inflation is temporary.
“The rapid wage growth currently underway in the US is a result of temporary—albeit, severe—labor shortages, especially in blue-collar and manual services jobs, said Gad Levanon, head of The Conference Board Labor Market Institute. “While we expect wage growth to slow a little in 2022, in the coming decade a tight labor market that drives wage pressures will be the norm. This will largely be due to the sizable generation of Baby Boomers continuing to retire, without enough people to replace them to meet the growing demand for workers.”
Despite slowing in July and August, The Conference Board’s Employment Trends Index (ETI) increased for the sixth consecutive month in August, but the rate of increase slowed. The index now stands at 110.37, up from 109.89 in July.
“The growth rate of the Employment Trends Index slowed in the past two months, reflecting the Delta variant’s impact on economic activity, especially in in-person services,” said Gad Levanon, Head of The Conference Board Labor Markets Institute. “We continue to monitor two trends which could put a damper on employment growth. First, the number of new COVID-19 infections continues to increase, holding back economic and job market recovery
Another sign comes employee benefits research organization WorldatWork.
Total United States salary budget increases fell for the first time in a dozen years, according to WorldatWork’s “2020-21 Salary Budget Survey.”
Respondents who took the survey during the COVID-19 economic fallout said the average salary budget hike will be 2.9%, a pronounced departure from the projected increase of 3.3%, according to WorldatWork.
Contributing to the decline in average salary increase budgets is the significant increase in the percentage of organizations indicating a 0% salary budget increase for 2020 – nearly 10 times higher than 2019. Meanwhile, respondents typically budgeting in the 3% to 4% mean range declined by 7 to 10 percentage points, depending on industry sector.
The last time the survey saw a decline in salary budget increases was during the Great Recession of 2008-09, according to WorldatWork. An updated survey will be fielded in October to offer further insights into salary budget strategies during the pandemic.
“As the economy recovered following the financial collapse in 2008, we first saw a gradual rise in salary increase budgets, then a leveling off. But over the past two years with low unemployment rates and increased competition for talent, we saw a bigger jump in salary increase budgets,” said Sue Holloway, Director, WorldatWork, in a statement. “Now, the sudden jolt of the pandemic has driven a higher percentage of organizations indicating a zero salary increase budget for 2020. More than 70% of companies are still giving increases in the 3% to 4% range.”
The 47th annual survey, the longest running of its kind, provides CEOs, chief financial officers and HR professionals with comprehensive, year-over-year data to design competitive compensation plans and total rewards strategies that attract and retain high-performing employees. The data covers nearly 14 million employees from 19 countries.
WorldatWork’s survey results seem counter to other pandemic employment trends. Some of these trends, such as labor shortages in certain industries or regions and upward pressure on wages, were already apparent prior to the pandemic.
According to a survey of the National Federation of Independent Business, 50 percent of small employers reported difficulty filling positions in August, an all-time high accompanied by rapidly rising wages.
Just 50% of companies say they will have a flexible or hybrid office after the pandemic and a whopping 81% of employers do not have a compensation strategy that takes remote workers into account, according to recent research by Payscale.com.
Payscale’s research found nearly one-third of employers, 30%, are still undecided about their pay strategy post-Covid.
PayScale’s Remote Work Report analyzed 538,438 online salary profiles collected from July 2019 to July 2021, and included a field survey with responses from 682 employers.
Data reflects multiple approaches to remote-based pay, with employees who work remotely currently not earning less compensation overall than non-remote employees, and 69% of organizations not planning to lower pay for employees who work remotely. However, this could change as location-based compensation strategies rise in popularity, especially for large, global organizations as well as technology companies, such as Google and Facebook.
Those with the inability to telecommute also report higher rates of job-seeking behavior.
“The last 18 months has shown us how productive and connected we can all be virtually, so it comes as no surprise that workers will continue to expect remote work or increased flexibility when the pandemic ends,” said Payscale CEO Scott Torrey in a press release. “Forcing employees back to the office full time will no doubt result in turnover, yet many organizations don’t seem to be prepared for that reality. Ultimately, it’s about people doing their best work, regardless of location, and the employers who are actively listening and making accommodations to improve the employment experience are most likely to come out on top.”
The Conference Board expects another month of subpar job growth in September with strong job growth resuming in forth quarter of 2021.
“Since COVID-19 is not going away anytime soon, a return to normal spending on, and employment in, in-person services is unlikely to happen in 2021,” The Conference Board’s Levanon said.