Workers’ Raises Are Outpacing Managers’ Pay Gains

Wages for rank-and-file workers are rising at the fastest rate in more than a decade—and outpacing pay raises for managers, new data show.

Pay for the bottom 25 percent of wage earners rose 4.5 percent in November 2019 from a year earlier, according to the Federal Reserve Bank of Atlanta, The Wall Street Journal reported in December 2019. Wages for the top 25 percent of earners rose 2.9 percent.

Labor Department data show a similar trend. Average hourly earnings for production and nonsupervisory workers in the private sector were up 3.7 percent in November from a year earlier—stronger than the 3.1 percent advance for all employees.

"There's been more job hopping, and firms are having a hard time finding employees," Michael Horrigan, president of the W.E. Upjohn Institute for Employment Research, told The Wall Street Journal. As a result, more employers are feeling pressured to increase pay to attract and keep workers.

Writing in The New York Times on Jan. 3, Ernie Tedeschi, head of fiscal analysis at Evercore ISI Research, attributed higher wage growth for the bottom third of U.S. workers in part to rising state and local minimum wage rates. However, he pointed out that "As notable as the recent rise in state and local minimum wages has been to this effect, it has probably not been as important as the tightening labor market."

U.S. companies' salary increase budgets are, on average, projected to rise by 3.3 percent in 2020, up slightly from 3.2 percent in 2019, according to several national salary surveys. Those findings could be upended, however, if employers find that larger pay increases are needed to retain employees.

[SHRM members-only HR Q&A: How can I locate resources for salary survey data for all industries and occupations?]

More Workers Getting Raises

Overall, 49 percent of U.S. workers reported seeing higher pay in 2019, up from 38 percent the prior year and the highest percentage since 2016, according to Bankrate's December Financial Security Poll of 591 employed adults.

"Low unemployment and a tight labor market with more than 1 million open, unfilled jobs is benefiting workers, with more reporting pay raises and finding better-paying jobs than each of the last three years," said Greg McBride, chief financial analyst at Bankrate, a personal finance website.

The majority of those who saw a raise weren't just compensated with a cost-of-living adjustment, Bankrate found: About 38 percent saw extra compensation for their performance while 31 percent were promoted or given new responsibilities.

Small Business Wage Growth Is Up

The tight labor market is also pushing up wages at small U.S. employers, according to December's Paychex/IHS Markit Small Business Employment Watch, providing more evidence that employers are feeling compelled to raise employees' pay.

The survey, which draws from the payroll data of approximately 350,000 clients of Paychex, a provider of payroll and HR services, showed that among businesses with fewer than 50 workers:

• Weekly earnings continued to accelerate throughout 2019, reaching 4.13 percent year-over-year growth in December.
  

• Hourly earnings rose 3.07 percent year over year.
  

• Weekly hours worked posted the strongest gains since 2012, nearing 1 percent growth from the prior year.

Reported wages include regular and overtime pay, commissions, and tips but exclude bonuses.

"Wage increases are finally beginning to reflect the tight labor market for small businesses," said James Diffley, chief regional economist at research firm IHS Markit, which conducted the survey. As labor markets tighten, "weekly earnings have accelerated, surging from 2.49 percent midyear to 4.13 percent at year-end," he noted.

Added Paychex President and CEO Martin Mucci, "Not only are businesses raising wages, but they're also increasing hours for their current employees—a sure sign employers are responding to the pressures of the tight labor market."

Wage gains have not been uniform throughout the U.S., however, as the South and Midwest saw lower hourly and weekly earnings and weaker growth rates than the West and Northeast.

U.S. Hourly Earnings by Region, December 2019

Source: Paychex/IHS Markit Small Business Employment Watch.

Staying Competitive

Companies risk losing their competitive edge if they don't heed the 2020 compensation trends, said Elliot Dinkin, president and CEO at Cowden Associates, a pay and employee benefits consultancy. "A top priority for every company should be to examine all trending compensation strategies to meet the needs of the workforce."

Wage increase numbers "are a good starting point when thinking about salary increases, but they are not the whole story," cautioned Ben Frost, global general manager at consultancy Korn Ferry. "Organizations should always use these numbers alongside other inputs, including thinking about their business strategy, cost structure, employee base and the markets in which they compete for people."

Related SHRM Articles:

Money Talks: 5 Compensation Trends to Watch in 2020, SHRM Online, January 2020

Wages Stall as Companies Spend Generously to Recruit, Not Retain, SHRM Online, December 2019

2020 Salary Budget Growth Expected to Notch Just Above 3%, SHRM Online, updated September 2019

Salary Increase Projections 2020, SHRM Express Requests