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Wage Hikes Will Grow, But Modestly For Most Workers

Everywhere you turn, one economist after another seems to be predicting that 2015 is the year workers will see the fatter paychecks that have been elusive in this recovery, enabling people to spend more and propel the economy to greater heights.

Sounds wonderful, right? But when you look at the numbers being talked about, the bump will be modest—about 1 percentage-point to a 3 percent annual increase. That’s the upper end of the median forecast in a Bloomberg survey of 61 economists in early January.

The recent plunge in oil and gasoline prices that is making paychecks stretch further is one factor that could help keep a lid on those raises.

Bloomberg BNA’s Wage Trend Indicator™ has been predicting an acceleration in the pace of annual wage growth for the past year. In the third quarter of 2014, wages and salaries climbed 2.3 percent, the most in almost six years, the Labor Department said.

The latest WTI, released yesterday, foresees further improvement by about the middle of this year. It isn’t designed to estimate how much wages will grow. Economist Kathryn Kobe, our consultant on the WTI for over a decade, expects that the annual gain will stay at or above 2.5 percent during that time frame.

The upward pressure on wages comes from good economic growth, steady hiring, and a shrinking pool of unemployed workers. As the labor market keeps tightening, in-demand skilled workers will become scarce and the companies that want them will have to hire them away from their current jobs with higher compensation.
Lower energy costs will help counter some of the pressure, by lowering the inflation forecasts that influence the size of wage increases, Kobe says.

A big unknown in the outlook is whether Americans who would like a job but haven’t been looking for various reasons—including economic uncertainty— will become job-seekers, growing the labor pool. While that wouldn’t help other workers’ wages, most economists would welcome such a development. A bigger workforce would mean stronger U.S. economic growth in the long term.

Over its history, the Wage Trend Indicator has forecast a turning point in wage trends six to nine months before they’re apparent in the Labor Department’s Employment Cost Index. For more WTI information, check out: http://www.bna.com/wage-trend-indicator-p12884902670/

Larry Swisher

Larry is the senior economics reporter at the Daily Labor Report, focusing on jobs, wages and the labor force. Prior to joining BNA in 2003, he was a congressional correspondent and newsletter publisher. Larry received his BA from Columbia University. You can contact him at lswisher@bna.com.

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