Wage growth is slowing, but experts don’t anticipate a return to 2019 pay trends (Courtesy of the Jacksonville Business Journal) — The number of job openings may still be plentiful — even amid a sea of high-profile layoff announcements — but salary growth is slowing.
New data from the Bureau of Labor Statistics shows private-sector earnings rose by an average of 2.9% in metro areas between December 2021 and December 2022. That’s down significantly from the strong salary surges that were taking place in spring and summer 2022, causing significant headaches for employers and driving up inflation.
The pace of year-over-year growth has slowed even since November, when the average metro posted a 3.4% increase in private-sector wages.
As we’ve previously noted, recruiters and hiring experts say employers are regaining some of their lost leverage and are being less aggressive with their payroll dollars for all except the most in-demand employees. Many companies, particularly in the technology world, are slashing executive pay. Some companies, such as Intel Corp., are also cutting salaries for midlevel employees, as well.
That being said, experts also don’t expect widespread return to pre-Covid pay habits or raise levels, due in part to shifting demographics. In fact, businesses have budgeted for their largest raises in 15 years in 2023.
“Employers probably feel like there’s a bit more balance now,” Monster Worldwide Inc. CEO Scott Gutz recently told The Playbook. “They’re going to be a bit more rational in terms of how they’re compensating new hires as we go forward.”
Even though wage growth is slowing, 67% of metro areas still experienced year-over-year wage growth and 35% of metros recorded growth of at least 5%.
Among the nation’s 100 largest metros, Jackson, Mississippi (up 13.7% to $923); Albuquerque, New Mexico (up 12.2% to $910); and Durham-Chapel Hill, North Carolina (up 11.6% to $1,198); had the largest year-over-year increases. Indianapolis (down 5.3% to $1,035), Raleigh, North Carolina (down 5% to $1,040) and Des Moines, Iowa (down 4% to $1,068); had the biggest declines, according to BLS data.
While economic fears and layoffs will likely curtail some of the salary challenges employers faced in 2022, experts say 2023 will bring its own pay headaches — including how to dole out raises at a time when employees and employers alike are combating inflation, as well as how to handle the growing number of pay transparency laws.
Companies also shouldn’t forget the nation remains in an inflationary environment. While that limits employers’ flexibility on pay, it also means raises won’t go as far as they did two years ago — and employees have noticed.
“What we’re hearing from our clients is that inflation is still high, and in order to keep individuals, we have to give them raises,” said Paul McDonald, senior executive director at Robert Half International Inc. “If the budgets don’t keep pace for 2023, they’re going to still have a flight of talent, and that’s unwanted. Their [employees] are still seeing solicitations.”
Be creative. Small businesses can’t often compete with larger counterparts on salary alone, but they often have more flexibility on perks like vacation time, remote work and career paths.
To close the gap, experts recommend doing formal retention interviews or employee surveys to find out what will move the needle with your workforce, what you’re doing right and what you can do better — and then acting on it.
Many small businesses have utilized their agility to experiment with unlimited vacation or four-day workweeks, for example. Of course, experts warn both of those perks may not be for everyone.
Think long term. With a slowdown likely, experts say companies need to think carefully about how high they are willing to go with raises to avoid being stuck with a salary that’s too high for the output.
Experts say that ship probably sailed in 2022 for many businesses as they ponied up for new hires and made aggressive counteroffers, which means 2023 could be a year of digging out from those scenarios and right-sizing payrolls.
Gutz said employers realize they’re going to have to take steps to retain staff, but he anticipates they will focus much of their efforts on the workers who would be most difficult to replace.
For others, Gutz doesn’t quite expect a return to 2019 thinking on salary strategy, but he predicts employers will be more rational than they’ve been over the past couple years.
Be transparent. There’s an ongoing push for pay transparency among employees — particularly members of Gen Z — and requirements are popping up in some major states.
Experts say businesses need to communicate early and openly about pay with candidates to avoid getting denied at the offer stage.
“I think a lot of candidates are getting to the finish line in the recruiting process and because the company hasn’t openly had that conversation around compensation, the candidates are almost getting surprised by it,” Corey Berkey, senior vice president of people and talent at recruiting technology company Employ Inc., recently told The Playbook. “They’re often driven by what they see online, which online, you can find some crazy, crazy benchmarks that are completely inaccurate.”