Wage Increases are Essential in a Near Zero Unemployment Environment
Goldman Sachs economists underestimated just how low the unemployment rate would drop this year; so much so that they have actually adjusted their outlook for 2018 to 3.8% from the original 4.1% projection. Typically, wage increases occur when the job market is tight because employers have to pay more to attract and retain workers. Despite a current 4.3% unemployment rate, and a highly competitive job market, wages are rising barely faster than inflation. The most recent Bureau of Labor Statistics (BLS) report revealed that average hourly earnings rose 9 cents an hour, which translates into a 2.53% annual increase. This falls short of the originally projected 3.0% increase that economists predicted. The last time the jobless rate was this low, that increase was more than 4%. This marginal increase is a sign of things to come, but up until now, many employers have been reluctant to adjust wages for a number of possible reasons. A lack of qualified workers has caused low productivity in many sectors, which could be a deterrent for employers to institute any salary or wage increases. Some companies are still recovering from the 2008 financial crisis that led to the Great Recession. Compensation packages have not caught up yet, and would need to be increased exponentially to be in-line with market standard. While the reason for the may vary by company and industry, talent scarcity, a major demand for qualified workers, and a need to retain their top performing employees is going to change the way companies approach wage increases in the near future.
Millennial Salary Expectations
Despite their lack of on-the job experience, even recent graduates are experiencing a high level of confidence in their abilities to earn a strong starting salary. A Forbes article citing a survey conducted by Wakefield Research noted that 52% of those surveyed said they’re expecting their first job after college to pay $50,000 or more per year. According to Glassdoor however, the average entry level salary in 2017 is $28,000. Whether this expectation is realistic or not, strong millennial candidates will have a lot of bargaining ability. As we noted in an earlier Bradley blog, 21% of 2016 graduates had already accepted jobs prior to graduation. This percentage will very likely be even higher next year as the need for A-level talent becomes more urgent. The current unemployment rate for those with a bachelor’s degree or higher is 2.4%. A recent Gallup poll suggests that 71% of millennials are not engaged or are actively disengaged at work, making them the least engaged generation in the U.S. This statistic alone makes them a greater flight risk. If you are not able to deliver on these expectations, those millennial employees will be more easily recruited from your organization by competitors, and less likely to take a job with your company upon graduation.
A Lack of Workers, Not Work
Labor scarcity is going to be one of the greatest influences to wage increases in 2017 and beyond. The Bureau of Labor Statistics (BLS) reported that the number of job openings increased to 6.2 million on the last business day of June. The pressure is mounting for employers to make adjustments in salaries and compensation because there simply aren’t enough qualified applicants to fill these open positons. The 3 biggest obstacles to hiring as reported by a recent LinkedIn survey are finding suitable candidates (46%), compensation (43%) and competition (39%). The competition among organizations to hire in high demand talent pools has become so aggressive, that a return to true headhunting is necessary to coax those already employed individuals into a position with your organization. Due to the supply and demand, qualified candidates have a lot of leverage when it comes to negotiating salaries. Those employers who do not adjust salaries in order to account for this tight market will inevitably have more difficulty filling positions, and keeping their top performing employees.
Impact of Inflation
While the current rate of inflation is considered to be dormant by many sources, there are many areas where price increases are apparent. According to Farming Magazine, the farming industry has predicted that the cost of milk will increase as much as $2 by the end of 2017. Low inventory and high demand are pushing home prices higher, according to an analysis by Zillow. Average rent costs in Pennsylvania are nearly $1400/month. Kelley Blue Book reported that the average transaction price for light vehicles in the United States was $34,342 in March 2017. Through daily purchases or monthly living expenses, inflation affects everyone on some level. Employees in today’s market have a reasonable expectation of an increase in wages to help offset the growing cost of living, and ensure their tenure with your organization.
Competitive compensation is a topic of concern for many of our clients right now. As recruiters, we see the same jobs being posted by the same companies over and over again because they are not attracting the right candidates. Companies can earn a reputation for having somewhat low pay scales. Candidates are able to discover this through referral sources and websites like Glassdoor and Indeed. This reputation deters top candidates from applying to positions in your organization. While any impending wage growth may not be dramatic, it is definitely on the horizon for most industries. It is likely that those wage increases will vary significantly, not only by industry, but also by individual employee performance. A Bloomberg Businessweek article suggests that employees will be more willing to settle for smaller increases in pay if inflation remains relatively low. The same article suggests that many companies may choose to re-train their employees for other positions, rather than recruit higher dollar candidates, and raise pay only where needed to attract top talent. The question is not if a global wage increase will happen, it is a question of when, and how much that increase will be. The ability to attract qualified candidates and retain top performing employees is an organization’s most valuable asset in the current job market. Employers will have to place a higher value on salaries and compensation in order to remain competitive.
Bradley Staffing Group is a full-service staffing firm based in Wayne, PA. We are committed to matching A-level talent with best-in-class businesses. Our knowledgeable and well-trained staff brings a combined 70+ years of staffing experience to our clients and candidates alike. http://useful-sock.flywheelsites.com/employers/