Forecast: Restrained Wage Growth Continues into 2015

U.S. wages overall are likely to remain under pressure, with variations

By Stephen Miller, CEBS Feb 2, 2015
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The wages of U.S. workers are anticipated to grow 1.7 percent year over year when measured at the end of the first quarter of 2015, according to the PayScale Index, which follows the change in wages of employed U.S. private-sector workers. The forecast is based on a predictive model that incorporates the Consumer Price Index and U.S. unemployment rates over time.

National wages during the fourth quarter of 2014 increased 0.6 percent, according to PayScale, while the average 12-month increase in U.S. wages across all industries at the end of 2014 was 1.8 percent.

 

Source: PayScale



Since 2006, wages have risen 7.5 percent overall in the U.S. But when inflation is factored in, "real wages" have actually fallen 7.5 percent during this period. In other words, the income for a typical worker today buys them less than it did in 2006. (For a look at the factors depressing wage growth in the U.S., see the SHRM Online article Wages: Stagnant or Just Shifting?)

U.S. Metro Wage Growth

The top five U.S. metro areas that experienced the highest annual wage growth in 2014, PayScale reported, were:

San Diego (3.7 percent).

San Francisco (3.6 percent).

Seattle (2.8 percent).

Houston (2.6 percent).

Dallas (2.5 percent).

The bottom two U.S. metros that experienced the lowest annual wage growth were:

Washington, D.C. (0.5 percent).

Miami (0.9 percent).

Industry Variations

“The last quarter of 2014 was a mixed bag in terms of annual wage growth,” said Katie Bardaro, lead economist at PayScale, in a news release. “Some measures such as retail, food services and legal jobs experienced significant positive wage growth, while others including the oil and gas sector and IT jobs fell in the last months of 2014.”

Among the industry sector findings:

The oil and gas industry saw lower average annual growth in 2014 (0.9 percent) than has been typical, likely resulting from the recent drop in gas prices, the index showed. However, this industry has experienced impressive wage growth of 19.3 percent since 2006, the highest of any U.S. industry.

Real estate may be recovering, with high quarterly wage growth of 0.7 percent in the fourth quarter. The final quarter’s performance brought the industry’s annual wage growth for 2014 to 3.3 percent.

Information technology (IT) jobs had relatively small wage growth in the fourth quarter, at 0.3 percent, resulting in 1.6 percent annual wage growth. However, IT boasts an impressive wage growth of 11.5 percent since 2006.

In addition, legal jobs saw large annual wage growth (3.8 percent) in 2014. Annual wage growth for legal jobs was the second highest it has been since the index’s inception in 2006.

Wage Growth Under the Radar?

Some pay analysts contend that the U.S. Government estimates on wage growth may be overly conservative. For instance, a recent report from Principal Global Investors, the asset management arm of Principal Financial Group, found that median annual wages in the U.S. grew from 1 percent to 3 percent from 2013 to 2014, versus the U.S. Census Bureau calculation of 1.7 percent.

“The most recent salary data showed a sharp increase above the previous trend, further suggesting that wage growth is picking up,” the report states. “Whether this trend continues long-term remains to be seen. But, survey data shows that more wage pressures may be in the pipeline.” For instance, the report noted:​

The National Federation of Independent Business’s Economics Trends reports indicate that more small businesses are increasing employee compensation. [In 2014] an average net 13.9 percent of small businesses planned to increase compensation, well above the 7.7 percent average since the end of the recession. The net percentage of businesses actually increasing employee compensation showed a similar pattern, averaging 20.3 percent for the last 11 months of 2014, versus about 10.2 percent for this expansion.

In another sign of recovery, the rising compensation 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.

At the same time, according to economists at The Conference Board in a February 2015 blog post, “Employers tend to be reluctant to lower wages for existing workers, thus making them more likely to do so for new hires, many of whom are part of the 21-25 age group. Recently, however, we have begun to see a recovery in wage growth for the 21-25 group. In particular, for those aged 21-25 with a BA, average wages increased by 4 percent in 2014.”


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

Related SHRM Articles:

Wages: Stagnant or Just Shifting?, SHRM Online Compensation, January 2015

85% of Companies Targeted Market Median for Base Pay, SHRM Online Compensation, January 2015

Workers Want Raises, or They Will Walk, SHRM Online Employee Relations, January 2015

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