The HR Daily Advisor recently sat down with PayScale’s Chief Economist, Katie Bardaro to discuss their recent findings that Q2 of 2018 saw wage decline.
HR Daily Advisor: A number of employee advocates went on record before the tax cuts became law warning that so-called “trickle-down economics” have not in the past had the desired effect of actually trickling down to the employees. How did the situation play out according to your research?
Bardaro: Our research shows wages for the average worker fell quarter over quarter and are only slightly up year over year. One of the promises of the tax plan was more money for the middle-income worker, but the short-term benefits have largely been reaped by capital owners and shareholders as they are mainly using the gains to buy back stock. However, it may be too soon to tell whether the tax plan will benefit the average worker or not, as some economists expect the gains to take up to 4 years to play out.
HR Daily Advisor: Your study suggests that wage growth related to inflation actually dropped over last quarter, the largest such decline in quite a few years. What might be the cause of that? What impact has that had on workers, and what impact might it have on them in the future?
Bardaro: Inflation has been increasing as of late due to rising oil prices, housing costs, and medical expenses. During the same time, wages have been relatively flat or declining. Put those two together and you get a large drop in real wages, which means people’s paychecks are able to buy less goods and services than they could in previous years.
HR Daily Advisor: According to the research, metro wage decline was particularly rampant with 22 of 31 metro areas showing such decline. What makes them particularly prone to such wage decline?
Bardaro: The wages in the metros have fallen victim to the same impacts we have seen nationally—even with decreases in unemployment and a rising GDP (as of Q1), wage growth remains muted or is even falling. The reasons as to why are varied: Research has shown an increase in the granting of bonuses vs. base pay increases, the power of unions and collective bargaining has decreased, new entrants to the labor market are filling low-paying jobs and/or have less experience than the retiring Baby Boomers, etc. The thing to keep in mind with quarterly numbers is they may be a blip—we won’t really know if it is a pattern until the next quarter. In looking at the annual growth numbers, they aren’t quite as dire—only one metro (Orlando) experienced wage declines year over year.
HR Daily Advisor: Which industries were hit hardest, and why?
Bardaro: The industries hit the hardest in terms of quarterly growth were Transportation and Warehousing (–2.9%) and Construction (–2.7%). In the case of Construction, this fall might be a response to the boom that happened in Q1 due to a particularly bad storm/hurricane season causing a higher than typical demand for construction services. Furthermore, we have seen some slowdowns in commercial construction vs. residential. For Transportation and Warehousing, we are seeing an influx in certain jobs (e.g., trucking) where new employees have less experience and are, thus, pulling wages down. Furthermore, we are seeing a reduction in some water and international freight transportation jobs.
HR Daily Advisor: Which industries fared best, and why?
Bardaro: The industries that have fared best quarter over quarter are Nonprofits (0.3%) and Finance and Insurance (0.3%)—in both of these industries, demand for specialized labor has increased, and thus, wages have gone up as this demand has been met with a relatively limited supply.
HR Daily Advisor: How concerned should employees be? How about employers?
Bardaro: The answer is, it depends—it won’t be clear whether the drop in wages seen for Q2 is a blip or a pattern until we see Q3 numbers. Rising inflation is likely to continue, so at the very least, if no action is taken, the buying power of wages will continue to fall. Employees in certain job families or industries (e.g., Finance and Insurance, Technology, Science and Biotech, Art and Design, etc.) have nothing to fear as their wages haven’t been subject to the same decline. Another sign as to whether employees should be concerned will be the Q2 GDP numbers. Some believe this unprecedented expansionary period is set to end soon, while others believe the low sustained growth can maintain for quarters to come. Either way, these numbers will provide another signal into the health of the economy and what the future might hold for employees.
Employers will eventually have to address the suppressed wage growth as the shortage of labor continues in certain fields. This is true up and down the spectrum as shortages have been an issue in everything from truck drivers to data scientists. In some ways it is a prisoner’s dilemma—although it may be in the best interest to offer higher wages to attract more and better talent, employers might not choose to do this if their competitors are not also doing it to avoid paying more than the person down the street.
HR Daily Advisor: Should any action be taken?
Bardaro: Firms that are finding it difficult to fill roles should ensure they understand how compensation can impact attracting and retaining top talent. Being informed on compensation trends and the market value of their positions will put them ahead of the curve as they can then leverage this fresh data to buck the trend happening nationally.
Check out these survey highlights. For a full set of results, click here.
- Wages were generally down across the board last quarter:
- Wages fell in 80% of industries with 12 of the 15 industries experiencing a decline.
- Metros: 22 of the 31 metro areas showed wage decline.
- Job Categories: 13 of the 19 job categories also saw a decline since last quarter.
- With 4.2% annual growth, tech-savvy San Jose tops the list of metro areas for highest wage growth—and by a large margin. Cleveland is a distant second with annual wage growth 1.6% lower.
- Wages in the tech industry held steady between in Q2, though they are still 2.1% higher than 1 year ago. With 14.5% growth since 2006, tech has seen the second largest wage gains since the great recession, trailing only the engineering and science industry.
- The largest decline in wage growth was in manufacturing and production jobs, which saw a 5% decrease since Q1. Construction jobs also took a big hit in Q2, as wages in that industry declined by 4.7% last quarter.
- The industry with the largest decline in wages was in the transportation and warehousing industry, where wages fell 2.9% last quarter.
- Accounting and finance positions (2.5%), along with art and design jobs (2.4%), posted the largest annual growth figures.
- Austin (2.3%), Orlando (1.7%), and Milwaukee (1.6%) had the largest decline in wage growth last quarter.