A tightening job market could help workers’ prospects for wages as employers might have to pay more to keep them.
Many workers might have reason to feel more optimistic about their chances of getting a raise than they have in years.
Nearly 2 in 5 small and midsize U.S. businesses, or 38 percent, said they plan to increase salaries in the next six months, the highest level in six years, PNC Financial Services found in a fall survey.
“I would expect business owners to be even more upbeat about pay raises in our upcoming spring survey, given that the economic backdrop has improved even further since our fall survey,” said Mekael Teshome, PNC Financial Group economist.
Jay Goltz, founder and chief executive of Chicago-based Goltz Group, whose five businesses include Artists Frame Service, Chicago Art Source and Jayson Home, called the Great Recession “a game changer.”
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Goltz said that he didn’t lay off anyone during the slowdown, but that he furloughed workers and stopped giving raises. Slowly, he said, the furloughs ended and raises were given again.
Goltz Group last year gave raises to most of its 110 of its employees, despite its businesses being hurt by prolonged cold weather. The PNC Bank survey also found that 36 percent of small and midsize businesses surveyed were hurt by the extremely cold weather in early 2014.
At minimum, Goltz Group raises last year were pegged to the inflation rate, Goltz said.
“At this stage, I feel that the economy is better,” Goltz said. He said he moved warehouse operations and production to a less expensive building, a deal made possible by the real estate slump, but some of those savings have been eaten up by higher labor and health insurance costs.
He expects to add four or five workers to his payroll this year. All of his workers make more than minimum wage, he said.
The size of Goltz Group pay hikes in 2015 will depend on whether a person is gaining skills or experience, or if the raises are cost of living increases. The increases will probably range from 2 to 6 percent, Goltz said.
Costs are rising, too
President Barack Obama referred to rising wages in his State of the Union speech last week.
“We know that more small-business owners plan to raise their employees’ pay than at any time since 2007,” the president said.
But costs are rising, too, according to the Heritage Foundation, a conservative think tank.
For much of the recovery since the Great Recession, U.S. wages have generally stayed even with the prices of goods and services. As a result, many workers haven’t received inflation-adjusted increases in salaries for years.
Last week, the Bureau of Labor Statistics said median weekly earnings of the nation’s 107.4 million full-time wage and salary workers were $799 in the fourth quarter of 2014. That’s 1.7 percent higher than a year earlier, compared with a gain of 1.2 percent in the Consumer Price Index. The Consumer Price Index is a measure of the average change over time in the prices paid by urban consumers for a basket of goods and services.
The National Federation of Independent Business survey said its Small Business Optimism Index rose in December to its highest level since October 2006.
It group a seasonally adjusted net 17 percent of businesses planned to raise compensation in the coming months, up 2 percentage points.
“The reported gains in compensation are still in the range typical of an economy with reasonable growth, and labor market conditions are suggestive of a tightening, which will put further upward pressure on compensation along with government regulations,” the federation said.
Incentive to stay
A tightening job market could help workers’ prospects for wages as employers might have to pay more to keep them. The nation’s unemployment rate fell by a larger-than-expected 0.2 percentage point to 5.6 percent in December, but that was partly because the labor force shrank last month. Still, the latest jobless figure is the lowest since June 2008 and is down from 6.7 percent a year earlier.
Rick Abens, president of Foresight ROI in Chicago, said his retail analytics company increased salaries “substantially” in 2014 and plans to raise them again in 2015.
“Competition for highly skilled people in the area of math and statistics” is one reason for the pay hikes, Abens said.
Wintrust Financial, an owner of banks, recently told analysts that staffers were getting base salary increases.
“So roughly a 3 percent salary increase will come through in the first quarter,” Chief Operating Officer David Dykstra told analysts during a conference call this month to discuss fourth-quarter financial results.
Annual salary increases were in the 2.5 percent to 3 percent range, averaging 2.8 percent, Chief Executive Ed Wehmer said in an interview later.
“Pretty much every employee got something unless there were performance issues,” he said. “Previous recent years were around 2.5 percent base increases.”
Wehmer said Wintrust never froze wages during the financial crisis.
“In times of crisis, that’s when you need to be most fair to your employees,” he said.
During its Jan. 21 earnings call, Chicago-based Northern Trust said compensation expenses rose 6 percent year over year, mostly reflecting higher incentive pay, staff growth and annual merit increases.
The margin of error in the 151 Chicago interviews by PNC Bank was plus or minus 8 percentage points.