Are Wages For Workers Starting — Finally! — to Show Some Growth?

A news story about optimistic pay trends claims to find signs of an impending upsurge in base hourly rates.

Conceding that this is not the consensus opinion among experts (“Government data show wages rising at only about 2 percent per year, which is roughly the same as inflation, meaning typical workers aren’t really getting ahead”), the article gives links to the study that offers a more positive view.

(S)ome employees are getting handsome raises, and they’re not just CEOs and Silicon Valley developers. New data published by Moody’s Analytics shows that workers in a large subset of the labor force earned 4.5 percent more in the third quarter than they did a year earlier. That’s more than twice the average increase in wages tracked by the government. It’s also more than twice the rate of inflation, which means these workers, at least, are getting ahead.

Moody’s analyzed data provided by payroll processor ADP, covering 24 million employees — roughly one-fifth of all U.S. workers.”

Looking for some good news

That is a pretty impressive sample size for a study.

The underlying report claims to separate the changes in hourly wages paid to those staying in their jobs, labeled job holders, from wages paid to those who change jobs, new entrants to the workforce, and those leaving it. That technical point is vitally important, to assure this is a constant-population sample and not two separate observation population groups like the BLS surveys.

What employee Kim Average earns from year to year will show the result of any pay increase, while a comparison of the wage paid to a different worker holding Kim Average’s job a year later merely shows a new replacement cost. The same person’s pay must be measured each year in order for any conclusions about individual increases received by job holders to be valid. So this looks pretty solid.

Good news would be welcome, because signs of stronger pay increases have been few and far between in recent years in America.

If  the economy were approaching full employment, wage growth would be accelerating. This is not evident in most measures of labor compensation from the Bureau of Labor Statistics.

However, this perspective is challenged by newly released data collected by human resource management firm ADP and developed by Moody’s Analytics, which show a definitive, broad acceleration in wage growth.

Cautions to consider

The old payroll processing firm now offers HR and talent management services, too. That certainly suggests they are confident of employment growth in the future. Allowing Moody’s to mine their customer data might have been a risky decision, but it could pay off with positive publicity about the optimistic analytical findings showing higher base increases than reported elsewhere.

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Cautions about the reliability of the study and its implications are mentioned in the full report, such as:

  • The companies using this outside payroll service may be more profitable than other employers;
  • This survey only covers base hourly wages, excluding the overtime and incentive pay included in government surveys; and,
  • Base wage growth varies dramatically by region, industry, gender, full/part-time status, wage tier (up to $75K), and company size.

Finally – some encouraging words

Still, it is nice to see some encouraging words about compensation as employers approach the end of the calendar year. Too bad so few companies have payroll budgets that flex with developing economic trends.

Oh, sure, organizations are quick to slow down pay increases in bad times, but it is much harder to find firms that accelerate their payroll spends or boost their budgets for wages and salaries in the middle of the fiscal year.

This is not the usual story. Nevertheless, it seems to make sense. What do you think?

This was originally published at the Compensation Café blog, where you can find a daily dose of caffeinated conversation on everything compensation.

E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.), and will express his opinion on almost anything. Contact him at ej.brennan@erieri.com.

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