Is the Rising Pace of Quits and Hires Beginning to Drive up US Wages?

Is the Rising Pace of Quits and Hires Beginning to Drive up US Wages?

The economic expansion in the US over the past few years has led to a very tight labor market, with employment falling to historic lows and long-term unemployed citizens beginning to re-enter the workforce, but to policymakers’ vexation, wage growth has remained sluggish. Wages ticked up last month, in a hopeful sign that the stagnation may be coming to an end, but it’s too early to identify a trend.

One positive sign for the labor market and the prospect of higher wages for US employees is that the quits rate has risen to its highest level since before the Great Recession, Dan Kopf points out at Quartz, raising the prospect that employees are confident enough to leave jobs in the hope of finding better ones—and perhaps confident enough to demand higher pay:

According to recently released data from the US Bureau of Labor Statistics (BLS), more than 3.2 million people quit their jobs in May 2017, the most Americans to quit in a month since early 2001. It’s also the highest rate of quitting since June 2006. …

Why are Americans so confident? Probably because the vacancy rate—the number of open jobs for each unemployed person—is higher than it’s been in a long time. The quit and vacancy rate have a close relationship, where open jobs can encourage restless workers to quit, in turn creating new open jobs. A strong labor market with lots of churn means harder work for recruiters. The average job in the US now takes over a month to fill, compared with 15 days during the worst of the financial crisis.

Both quits and new hires can be volatile statistics, however: The Labor Department’s Job Openings and Labor Turnover Summary (JOLTS report) for April 2017 showed that both metrics declined somewhat that month, though the number of job openings increased. Meanwhile, SHRM’s Roy Maurer highlights two other reports showing that employers are hiring at a robust pace and signaling that they are willing to pay higher wages to entice talent in a highly competitive labor market:

CareerBuilder’s 2017 Midyear Job Forecast shows that 60 percent of employers plan to hire full-time employees from July through December, up from 50 percent at this time last year, and 46 percent plan to hire temporary or contract workers, up from 32 percent in July 2016. CareerBuilder also found that 27 percent of workers plan to change jobs by the end of the year. …

The latest Manpower Employment Outlook Survey, released by ManpowerGroup, a global HR consulting firm headquartered in Milwaukee, supports the CareerBuilder findings, indicating that U.S. employers expect the hiring pace to remain positive in the third quarter of 2017. The survey of 11,000 employers showed that 24 percent plan to hire between July and September, a 2 percent increase from a year ago. … Over 70 percent of HR managers told CareerBuilder that they will have to start paying higher wages due to an increasingly competitive labor market.

Another possible explanation for the trend of stagnant wage growth is that employees aren’t demanding raises as forcefully as they could be. Earlier this month, Bloomberg News editor for global economics Daniel Moss observed that some countries’ central banks were beginning to urge workers to push for higher wages:

I know the prospect of central banks urging workers to rise up sounds like “man bites dog,” especially given the battle against inflation that characterized the 1970s and 1980s. But it’s plausible. As in so many things, the Bank of Japan could be instructive. Last year, BOJ officials from Governor Haruhiko Kuroda on down made it known they thought labor unions could have asked for more in annual wage talks with employers. Kuroda has said wage expectations, not just the wages themselves, are key to breaking a deflationary mindset.

In Australia, Reserve Bank Governor Philip Lowe was more direct a few weeks ago. Observing taut labor markets around the world, Lowe told an audience in Canberra: “At some point one imagines that’s going to lead to workers being prepared to ask for larger wage rises. If that were to happen that would be a good thing.”