On Friday, the Department of Labor’s Bureau of Labor Statistics released data from its Employment Cost Index.  The data confirms what many employers are experiencing; wages are increasing.  On a national basis, costs for wages and salaries among private industry increased 3.5%.  This is the largest increase in more than 14 years. 

Cost for wages and salaries in the Midwest and the Detroit-Warren-Ann Arbor, MI CSA were marginally lower than the national figures for private industry.  Respectively, increases in those geographic areas over the last 12 months were 3.3% and 2.8%.

Among private industry occupational groups, compensation cost increases for the year ending in June 2021 ranged from 2.4% for management, professional, and related occupations to 4.8% for service occupations.  Data revealed that much of the increase was driven by sharp rise in pay for restaurant and hotel workers of more than 6%.

It is important to note, that the Employment Cost Index measures pay changes for workers that keep their jobs.  This is unlike some measures that could be impacted by layoffs.

Another group of employees who are seeing increases in their wages include Job Switchers.  The Atlanta Federal Reserve’s Wage Growth Tracker reported in June reported a 3.8% increase for those who changed jobs to a new employer versus a 3.1% increase for those who stayed with the current employer. 

What is the impact for employers?

It is important to keep in mind that the U.S. is still below our pre-COVID labor participation rates, and regardless of the cause, labor shortages are likely to persist for some time.  As a result, employers need to be aware of the salary administration challenges posed by their ongoing efforts to attract new talent.

Pay compression, for example, where the pay of entry for lower skill workers approaches their more senior or skilled counterparts is a surging issue among employers.  This is particularly the case for employers who do not maintain formal pay structures or programs.   In those instances, ad hoc salary decisions can sometime go on undetected.  Put simply, you can’t manage what you don’t measure.  Left unresolved, pay compression can exacerbate perceptions of pay inequity and lead to unnecessary turnover.

In addition, solely focusing on one segment of your employer population can cause significant issues among employee morale.  Proper communication and other efforts can mitigate the impact on those employees who feel ignored by the apparent “gold rush.”

Employers should take this as a call to formalize their pay programs and pay administration practices.  Developing wage structures or job rates with formal ranges and evaluating that data for issues will be key in the months ahead.  Employers should also identify the right mix of tools to address pay issues.  Increasing base pay may be only part of the equation. 

In the end, it is often difficult to maintain a long-term strategy when there is an immediate need to find talent and meet production or service levels, but many of the issues employers are facing now may prove to be temporary.

To learn more how ASE can help your organization with its compensation program and administration, contact Kevin Marrs.

Sources:

https://abcnews.go.com/US/wireStory/worker-pay-rises-strongly-businesses-fight-fill-jobs-79166342

https://www.atlantafed.org/chcs/wage-growth-tracker.aspx

https://www.wsj.com/articles/companies-pay-new-workers-higher-wages-and-current-employees-ask-what-about-us-11627810202  (Subscription Required)