Employees hoping for a pay raise in 2016 may be disappointed. The outlook isn’t favorable except for the select few who are at the top of the corporate hierarchy or have skills essential to their employer.
Annual raises and cost-of-living increases were common before the 2008 financial crisis. Since then, pay raises have been hard to come by.
Today pay raises are all about results, says Michael Lazarchick, a professional employment counselor in Mays Landing, New Jersey.
“If (the employer) perceives somebody as talented — doing more and making money for them — they will pay to get those people, and those people will do well,” Lazarchick says. “But the average person? No. They aren’t necessarily going to get a pay raise.”
Location, location, location
Geography is also a factor, as labor markets differ from one place to another.
Lazarchick cites Atlantic County in New Jersey as an example. There, online gambling has created new competition for local Atlantic City casinos.
“The economy is terrible,” he says. “This is not the place to be looking for a pay raise.”
Some economic sectors are more likely than others to see employee wages go up. Lazarchick points to energy, real estate, data and telecommunications as industries that offer higher wage opportunities.
Alfred McIntosh, principal at McIntosh Capital Advisors, a financial planning and investment firm in Los Angeles, says most workers won’t be offered pay raises until economic activity picks up. The U.S. economy is driven largely by consumer spending.
“We’ve had a very slow-growing economy, which is not so good because it means you may not get the type of raise you want or need, and you, therefore, won’t feel like you’re getting ahead or doing better,” McIntosh says.
Experts say that as long as labor market conditions favor employers, self-employment might be a better path to a higher income.
“Whoever owns and runs the business decides how much they are going to pay,” Lazarchick says.
Despite the opportunities, self-employment apparently doesn’t appeal to many millennials, those age 18 to 29.
A recent poll by the Harvard University Institute of Politics found that starting a business was a “most important” or “very important” goal for only 31% of 18- to 29-year-olds. A larger proportion, 35%, said this goal was not at all important to them.
Wage outlook by the numbers
Multiple surveys support the weak outlook for wage increases:
- The U.S. Bureau of Labor Statistics reported in November that the nation’s 110.4 million full-time wage and salary workers earned median weekly earnings of $803 in the 3rd quarter of 2015. That was just 1.6% higher than a year earlier.
- A Bank of America Merrill Lynch survey of 500 chief financial officers at large corporations found 54% planned to hire additional full-time employees in 2016.
However, the CFOs expected their companies’ total labor costs, including compensation and benefits, to increase just 5% for the year. Moreover, 39% of the CFOs said health care cost — a component of labor cost — was the top business concern that threatened their companies’ earnings.
- An October 2015 survey by the National Association for Business Economics of 106 NABE members and industry economists found that only 33% reported wage and salary increases in the 3rd quarter of 2015, compared with 42% in the 2nd quarter and 45% in the 1st quarter.
Only 44% of respondents anticipated wage and salary increases in the next 3 months, the lowest level since October 2014. The outlook was strongest in the finance, insurance, real estate, transportation, utilities, information and communications sectors.
- A December 2015 survey by the Society for Human Resource Management, or SHRM, of more than 1,000 human resources professionals at private-sector service and manufacturing companies identified 3 trends compared with the prior year.
First, the pace of hiring employees was expected to rise in services and drop in manufacturing. Second, recruitment difficulties had increased in services and decreased in manufacturing. Third, new-hire compensation offers were up in services and unchanged in manufacturing.
Services sector well-positioned
The survey tracks leading indicators that suggest what might happen in the future, says Jen Schramm, manager of workforce trends and forecasting at SHRM in Alexandria, Virginia.
An uptick in new-hire compensation in the services sector might eventually translate to pay raises for current workers.
“If new hires are getting increased offers, there is nothing to stop existing employees from seeking new opportunities so they, too, can get higher offers. Eventually, the logic goes, it will have an impact on wages overall,” Schramm says.
Recruitment difficulties signal the outlook for key employees since the survey specifically asks about positions of greatest strategic importance.
“People with in-demand skills and experience are in a position to get more, especially in the services sector,” Schramm says. “Whatever is making it so hard for companies to fill those jobs, (those who have the desired skills) are in a position to ask for more.”