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Happy New Year — you’re probably getting a raise



Experts agree that after six years of economic struggles, wages are finally set to rise. They see the greatest gains in real estate and telecommunications

If it’s been a while since you’ve had a raise, the economic winds will be blowing in your favor in 2015, experts say.

“If you have a skill set that is in demand or made a major accomplishment at your company, it is a good time to talk to your boss,” says John Challenger, CEO Challenger, Gray & Christmas, a Chicago outplacement firm.


In the wake of the Great Recession, many people were grateful to simply have jobs. But five years into the recovery, wage growth and salary increases have been nominal at best. There has been steady improvement in the labor market in 2014, with the past ten months showing non-farm payroll gains of 200,000 new jobs or more. Workers are wondering whether the scale has tipped enough to put upward pressure on salaries and wages.

There is, and it’s because the best workers now have an advantage.

“We are in the sixth seventh inning of this period of expansion that has been going on for five years. As you get near full employment, there is more competition for the best workers,” says Challenger.

“It is getting to the point where unemployment is so low that companies are having a harder and harder time finding skilled engineers, technology and health care workers, tradesman and accountants. We are starting to see more shortages of people with these skills. As you see shortages, wages start to go up,” Challenger adds.

Economists forecast continuing improvement in the labor market. Wells Fargo projects a decline in the unemployment rate to end 2015 at 5.4% and a drop to 5.1% by the end of 2016.


The most important aspect of jobs growth is what it means for wages. A plethora of low-paying part-time jobs have contributed to the apparent resurgence of the economy, but they don’t do much for workers.

Finally, however, salaries are rising. Average hourly earnings also revealed a stronger-than-expected 0.4% jump in November, after anemic gains of 0.1% in October and an unchanged reading in September. The November increase pushed up the year-over-year rate of average hourly earnings to 2.1%.

“There are encouraging signs that we are closer to conditions considered full employment where firms would have to keep raises attractive in order to retain and attract employees,” said Sam Bullard, senior economist at Wells Fargo.


Is this a preview of more wage gains in 2015? Yes, say experts.

“Job markets are tighter and it does indicate greater opportunity for salary increases,” said John Bremen, managing director Towers Watson, a human resource and risk consulting firm.


“We are expecting hourly wages to pick up,” says Beth Ann Bovino, US chief economist at Standard & Poor’s. She expects wages to approach a 2.5% increase by the end of 2015.

An Aon Hewitt survey projects that 2015 salary increases will hit their highest levels since 2008.

Salaried exempt workers, or professionals, can expect a 3% salary increase in 2015, which compares favorably to the 1.8% level seen in 2009, and the highest level since the 3.7% jump recorded in 2008.


Employers will have a harder time finding people, and it makes you more valuable.

John Challenger

The “quit rate” found in the JOLTS job openings report from the US Bureau of Labor Statistics is a favored statistic by Janet Yellen, chairman of the Federal Reserve, and is seen as a type of confidence gauge for job seekers. It measures how many workers quit their jobs, which in turn is a sign of greater economic freedom.

In October, 2.7 million Americans quit their jobs, leaving the overall quit rate at 1.9% in October. That is up from a record low at 1.4% in 2009 during the Great Recession. The statistic shows “people are leaving their jobs voluntarily, and suggests even more bargaining power,” said Standard & Poor’s Bovino.

Bovino is watching for continuing declines in the short-term unemployed rate, 15 weeks or less, as a predictor for wage growth. In November, that rate stood at 3.15%, which is down from the recession peak of 5% in May 2009.


Rooting for inflation?

Low inflation has been a factor depressing wages in recent years as well, economists say.

“Historically, wage moves are most highly correlated with inflation. Generally, companies will look at inflation over the last year as a factor in determining how much of a salary increase should be given. Wages are at 2%, not 4% because inflation is low,” said Chris Rupkey, chief financial economist at MUFG Union Bank NA.

Through October, US consumer prices – a measure of inflation – were up 1.7%, which is below the Fed’s target of 2.0%.

“Once upon a time where inflation was high in the 1970s, companies frequently gave double-digit wage increases. In the 1980s, sometimes you would see a 10% increase. In the 1990s, as growth and inflation slowed down, wage increases stabilized around 3%. A 3% increase has become what I would consider a solid benchmark for what many consider a normal year,” said Bremen.


In addition to the actual tightness of the US labor market, there may be other forces at play keeping a lid on wage growth, including demographics and global competition for jobs, economists say.

“The gossip among economists is one reason for the depressed wages is that the baby boomers are retiring”, said Rupkey. “Older workers are paid better, and as they retire, the number of people getting the high wages decreases and it reduces the average. Those jobs are being filled with young people not getting much.”

Global competition for jobs, including manufacturing overseas and outsourcing for professional services has been a trend in place in recent decades, but still plays into the US wage outlook, according to John Lonski, managing director at Moody’s Analytics.

“American workers are increasingly competing with increasingly skilled and always cheaper labor in emerging markets”, said Lonski. “At first it was just manufacturing, now it has spread to services like computer programming. We are seeing a global redistribution of income.

“Everything we’ve seen lately points to increased slack in the global economy. The average worker with average skills will find intense competition globally. Whenever you have high unemployment, it is difficult to make an argument that wages are going to accelerate significantly,” Lonski added.


Looking for more bargaining power to ask for that raise? What you do and where you live matters.

Across industries, the Aon Hewitt survey forecast the real estate sector to have one of the higher salary increases – 3.4% – with telecommunications at 3.2% and the pharmaceutical sector at 3.2%. The lowest increases were projected in education, at 2.7%, and government, at 2.6%, Aon Hewitt said.

Look at the unemployment rate of your particular city. There are a number of cities in the US with unemployment rates at or below 3% as of October, according to the Bureau of Labor Statistics. These include Bismarck, North Dakota; Lincoln, Nebraska; Ames, Iowa; Rochester, Minnesota and Boulder, Colorado.

Low unemployment means “employers will have a harder time finding people, and it makes you more valuable,” said Challenger.


You may want to wait until the confetti is cleared off the ground – but if you are a worker in the US, this may finally be your year.

guardian.co.uk © Guardian News and Media 2014

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