Higher wages signaled by more U.S. employees quitting
If someone at your workplace recently quit, you may be poised for a raise.
With more Americans voluntarily leaving their jobs and confidence about business conditions improving, wages could increase amid this labor-market turnover.
More than 2.5 million U.S. workers resigned in May, a 15 percent increase from a year earlier, based on seasonally adjusted data from the Labor Department. These employees represent about 56 percent of total separations, the highest since November.
Such departures serve as a proxy for consumer confidence because people are more likely to quit when they have a new position secured or are convinced that another is readily available, said Nicholas Colas, chief market strategist at ConvergEx Group, an institutional equity-trading broker in New York. The most-recent quits data were “very positive,” which suggests sentiment finally has turned a corner, he said. The report is one that Federal Reserve Chairwoman Janet Yellen has said she uses to judge the strength of the labor market.
The share of Americans who say business conditions are “good” minus the share who say they are “bad” turned positive in June for the first time since January 2008: 0.2 percentage points, up from minus 3.5 points in May, based on data from the Conference Board, a New York research group.
“Consumer confidence has been the last piece to come back in this recovery,” Colas said. This suggests wages also could go up because as employees feel more emboldened to switch seats, their bosses may be willing to offer higher compensation in an effort to prevent such turnover, he said.
People working in the private sector could see stronger salary gains ahead, according to Bloomberg BNA’s Wage Trend Indicator, designed to predict and interpret compensation trends. This forward-looking index rose to 99.12 in the second quarter from 98.92 in the first, marking the third consecutive increase and highest level since March 2009.
Pay for these employees could increase more than 2 percent by year-end, said Kathryn Kobe, an economist at Economic Consulting Services in Washington, D.C., who helped develop and maintains the indicator. Wages rose 1.7 percent in the three months ended March 31, near a post-recession low of 1.3 percent, data from the Labor Department show.
This type of “upward pressure” follows improvements in broader economic activity, Kobe said. That’s because people need to feel secure in their job before asking for a raise, while many companies won’t feel compelled to agree until competitors “bid labor away” from them, she said.
More robust hiring has helped give workers “a little more bargaining power,” Kobe said. U.S. employers added an average of 230,830 workers to payrolls in January-June, up from 203,500 in the comparable period last year and the most since 1999, Labor Department figures show. The unemployment rate fell to 6.1 percent last month, the lowest in almost six years, from 6.3 percent in May.
With the world’s largest economy “not that far off from full employment,” labor-market dynamics are changing, said John Challenger, chief executive officer of Chicago-based Challenger, Gray & Christmas, a human-resources consulting company. Central-bank policy makers project the longer-run jobless rate is 5.2 percent to 5.5 percent, according to their central-tendency estimate released June 18, which excludes the three highest and three lowest forecasts.
“There are pockets where the control is starting to shift from the employer to the worker,” Challenger said. As shortages appear for particular skills in some industries or regions, companies will face more pressure to add staff or pay existing ones more. “They don’t want people to jump ship and vote with their feet.”
There also are broader implications from increased turnover, according to Colas. Now that confidence in business conditions finally has turned positive again, the prospect of wage growth that “speaks to the beginning of higher inflation” suggests the Fed could see room to raise its benchmark interest rate “sooner rather than later.”
Even so, Yellen told lawmakers July 15 that the central bank must maintain its record stimulus program to combat persistent job-market weakness.
“We need to be careful to make sure that the economy is on a solid trajectory before we consider raising interest rates,” she said to the Senate Banking Committee.
The number of people who voluntarily left their jobs in May still trails a November 2006 high by about 18 percent, and Yellen told a House committee July 16 that quits “remain below normal.”
A slowdown in hiring after the first half’s gains could rattle consumer confidence, suppressing turnover and pay increases, Kobe said, adding that wage changes can be difficult to gauge because the compensation puzzle has many pieces. In addition, declining participation in the U.S. labor force – at 62.8 percent, down from a pre-recession high of 66.4 percent in December 2006 and January 2007 – suggests there have been structural changes since the 18-month slump that ended in June 2009, Colas said.
Still, barring “some major shock to the system,” the U.S. recovery is slowly benefiting more workers, Challenger said. That’s evident in the amount of time it’s taking for job seekers to find new positions: an average of 2.84 months in the second quarter, down from 3.52 months a year ago, he said, citing data collected by his company.
Participation in the government’s food-stamp program also has declined in the past year, which suggests low-income Americans are seeing some improvement in their financial situation, Colas said. Meanwhile, the minimum wage will rise in several states next year, which could help adjust the pay for other types of workers, Kobe said.
All of this bodes well for disgruntled employees who are looking for new opportunities.
“Some people stayed with a company despite having a bad boss because they needed job security,” Challenger said. “Now, they have more faith they can find something better.”