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A Nation of Wage Stagnation

After a decade of flat wages, two economists say major changes are needed — and employers aren’t going to like them: Raise the minimum wage and create opportunities for workers to join unions.

October 14, 2013
Related Topics: Compensation Design and Communication, The Latest, Compensation

Several recent studies on U.S. workers’ paychecks show little movement in base pay during the past several years, and experts don’t predict much change in the coming year or even the near future.

Still, salary experts differ over what this really means.

Optimists argue that companies are getting more creative in crafting pay packages, offering a “total rewards” approach that considers all the salary, incentives, bonuses and perks that can keep workers engaged, even if their base salaries don’t budge.

But the more skeptical economists say employers must act on stagnating wages if the U.S. economy is to thrive. Economists Lawrence Mishel and Heidi Shierholz of the Washington, D.C.-based Economic Policy Institute released a report on wages in August titled, “A Decade of Flat Wages: The Key Barrier to a Shared Prosperity and Rising Middle Class.”

“According to every major data source, the vast majority of U.S. workers — including white-collar and blue-collar workers and those with and without a college degree — have endured more than a decade of wage stagnation,” the authors wrote. “Wage growth has significantly underperformed productivity growth regardless of occupation, gender, race/ethnicity, or education level.”

The institute’s report found that, between 2000 and 2012, wages were flat or declined for the entire bottom 60 percent of the wage distribution, despite productivity growing by nearly 25 percent during the period.

Mishel argues that the economy cannot truly recover without big policy changes. And his key points won’t sit well with employers: Raise the minimum wage and create more opportunities for workers to join unions. “What we need to do is establish broad-based wage growth, starting with those at the bottom and using that as a way to help generate wage growth for all workers.”

Shierholz said that compensation hasn’t moved in the past year either. From the first half of 2012 to the first half of 2013, compensation among all occupations combined grew just 0.3 percent, the institute reports. “There’s very little reason to be optimistic going forward,” she said.
Philadelphia-based management consultancy Hay Group reported in a separate salary study that U.S. employees can expect median base salary increases of 3 percent in 2014, which is consistent with such raises the past three years.

The Hay Group said median base salary increases held steady across most industries, except for the oil and gas sector, where median pay increases of 4 percent are projected for 2014.

Marc Wallace, vice president and market leader for the Midwest Region of Hay Group, said the stagnant wages reflect that more companies are adopting a total rewards package for employees, meaning they’re looking beyond base pay to long-term incentive pay, leadership and promotion opportunities, and a wide array of benefits and perks to keep employees engaged.

Alison Avalos, research manager for WorldatWork, agrees. In its 2013-14 salary budget survey, WorldatWork reported that total salary budgets in the U.S. increased just slightly from one year ago to a 2.9 percent average increase.

Yet Avalos said there’s encouraging news in the way companies structure their pay and benefits packages to include all the things that make workers happy, such as flexibility, the quality of managers, bonuses and noncash recognition programs for top performers.

“It’s no longer just about pay. It’s all the things that satisfy you as an employee,” Avalos said. Since 2009, she said many companies have inched up from zero percent salary budget increases to the 3 percent boost.

“I don’t think we’ll ever see the day of pay increases of 10 percent like we saw in the 1980s simply because there are so many other things being offered now,” she said. “There’s a broader package” of rewards and incentives.

Meg McSherry Breslin is a writer based in the Chicago area. Comment below or email Follow Workforce on Twitter at @workforcenews.

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