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Worker salaries are poised to climb in 2016

posted on Tuesday, December 29, 2015

WASHINGTON — American workers are poised in 2016 to finally get what they’ve been missing for years: higher salaries.

Even as the recovery from the Great Recession brought booming corporate profits, most workers’ salaries have barely kept up with inflation.

But now, as the nation edges ever closer to full employment and with layoffs near historical lows, there are growing indications that ordinary workers are finally starting to reap some of the gains of the 6½-year-old recovery.

A variety of wage and salary statistics — from payroll processors, private analysts and Federal Reserve researchers — indicate that the underlying rate of pay increase for workers has been picking up much more in the last year than commonly thought.

“We’re at a turning point,” said Mark Zandi, chief economist at research firm Moody’s Analytics. “I think it’ll be a breakout year (in 2016) for wage growth.”

If average workers’ pay does rise significantly, it should give a nice boost to consumer spending, the key driver of U.S. economic growth. It should also increase consumption among lower- and middle-income households, providing a more balanced pattern of spending that for years has been skewed to wealthy households.

Economic growth next year is projected to remain moderate but about half a point stronger than this year’s pace of a little more than 2 percent.

Moody’s estimated that the average pay for full-time workers who have kept their jobs grew 4.1 percent in the third quarter from a year earlier. That’s about double the hourly wage increase for all private-sector workers as reported by the Bureau of Labor Statistics, which produces the most commonly cited figures on workers’ earnings.

But the bureau’s report is based on aggregate data that include part-time and new workers, so the overall wage changes are likely to understate the gains of existing workers.

Moody’s relies on records of 24 million existing employees from the payroll processor ADP. And they exclude new hires who may be replacing higher-paid baby boomers retiring from their jobs.

A separate study by the Federal Reserve Bank of Atlanta found a similarly improving trend: Median wage and salary growth, after hovering at about a 2 percent annual pace from 2011 through June 2014, has since risen to more than 3 percent, according to the Atlanta Fed. The growth was generally stronger for male and full-time workers, as well as those with college degrees. The median marks the halfway point.

It shouldn’t be surprising that wages are creeping higher. The labor market has been tightening, forcing more employers to offer higher pay to recruit and retain workers. Thirteen states had a jobless rate of 4 percent or less in November, up from five a year earlier.

The jobless rate nationwide was 5 percent last month. Even big states and cities on the coasts with traditionally higher joblessness have seen sharp declines. California’s unemployment figure fell to 5.7 percent last month from 7.2 percent a year earlier. Washington state’s jobless rate was 5.3 percent in November, down from 6.3 percent in November 2014.

At 2.3 percent, Iowa City, Iowa, shares the lowest jobless rate with Lincoln, Neb., and is one of 31 metro areas in the nation with a jobless figure of 3 percent or less (the Seattle area’s jobless rate, in comparison, was 4.2 percent in November).

Things have gotten so tight in Iowa City that the area is sending folks to the Rose Bowl next month — not just to root for the Iowa team but to recruit employees from Southern California, said DaLayne Williamson, workforce-services director at the Iowa City Area Development Group, a nonprofit.

Williamson estimates that pay in her region is averaging 3 to 5 percent higher than a year earlier, although it’s considerably more for skilled and technical positions. Openings at a Whirlpool plant in nearby Amana include electrical technicians earning $49,000 a year.

“Larger companies have full-blown campaigns to reach people,” Williamson said.

Competition, and pay, will only rise as the U.S. reaches full employment. Most officials at the Fed, which began raising its benchmark interest rate this month after seven years of keeping it at rock bottom, regard 4.7 percent as full employment.

A broader measure of unemployment and underemployment, which includes part-time workers who want full-time jobs, stands at a much higher 9.9 percent of the labor force. But if the economy continues to generate an average 200,000 jobs or more a month next year, as it has for the last three years, both this broader rate and the official jobless figure are likely to hit optimal levels sometime next year.

Don Lee