After-Inflation Wages Accelerating, Data Show

Employers are focusing on retaining talent at this stage of the recovery

By Stephen Miller, CEBS Oct 15, 2014

In a sign of economic recovery, the wages of job holders—not new hires—have become the prime contributor to wage growth, indicating that employers are focusing on retaining talent, according to payroll administrator ADP.

The third quarter 2014 ADP Workforce Vitality Index report, released Oct. 8, shows that real (after inflation) wages are accelerating across the U.S.

Based on data for 24 million private-sector U.S. workers, the report revealed that:

Hourly pay for private-sector workers was up 4.5 percent in the third quarter compared to a year earlier.

Pay rose fastest for financial and construction workers—up about 4.8 percent over the year.

By region, wages increased the most in the West (4.7 percent).

Workers under 35 and those earning less than $50,000 a year also are seeing bigger raises.

Some 6.3 percent of all employees changed jobs last quarter.

The quarterly report considers four types of workers in the labor market: those who stayed with the same company (“holders”), those who changed jobs and firms (“switchers”), “new hires” and those who left the company without a new position (“quitters”), including those whose departure was due to retirement or company closure or who dropped out of the labor force.

Since the beginning of 2013, job holders’ wages have become the primary contributor to overall wage growth. This may mean employers are becoming more confident about the economy and are focusing on retaining their talent by raising wages.

Factors Contributing to Wage Growth

(click graphic to view larger version)

Source: ADP Workforce Vitality Index

“The growth we are showing…is being primarily driven by an increase in real hourly wage rates,” said Ahu Yildirmaz, vice president and head of the ADP Research Institute, in a statement accompanying the findings. “This is a good sign that may lead to increased consumer spending and a boost for the economy.”

Regional Variations

Wages grew faster in the South and West, compared to the Northeast and Midwest regions, during the third quarter. Moreover, while wage growth has trended higher in all four U.S. regions over the past three years, the gap between the South and West versus the Northeast and Midwest began to appear in the second half of 2012 and has been growing ever since.

This widening gap can be attributed to faster employment growth, a slower decline in the growth rate of hours-worked and faster growth of real hourly wages in the South and West, the report states.

Wage Growth Differentiation by U.S. Region

(click graphic to view larger version)

Source: ADP Workforce Vitality Index

Age Variations

The pace of growth has not been uniform across age groups. The fastest growth in real hourly wage has been among the youngest and lowest paid—the Millennials (those born 1980 to the early 2000s). However, Generation X and Baby Boomers did catch up in the third quarter of 2014, another sign that employers were becoming more confident and taking steps to retain talent.

Job Holders’ Real Hourly Wage Growth by Age

(click graphic to view larger version)

Source: ADP Workforce Vitality Index

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

Related SHRM Articles

Variable Pay Spending Spikes to Record High, SHRM Online Compensation, September 2014

Pay Raises Spotlight Top Performers, SHRM Online Compensation, August 2014

Salary Budget Increases Broadly Consistent, SHRM Online Compensation, August 2014

Base Salary Rise of 3% Forecast for 2015, SHRM Online Compensation, July 2014

SHRM Express Requests—Salary Survey Directory

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