Worker salaries are poised to climb this year

WASHINGTON – American workers are poised in 2016 to finally get what they've been missing for years: higher salaries.

Even as the recovery from the Great Recession brought booming corporate profits, most workers' salaries have barely kept up with inflation. But now, as the nation edges ever closer to full employment and with layoffs near historical lows, there are growing indications that ordinary workers are finally starting to reap some of the gains of the 6-year-old recovery.

A variety of wage and salary statistics — from payroll processors, private analysts and Federal Reserve researchers — indicate that the underlying rate of pay increase for workers has been picking up much more in the last year than commonly thought.

"We're at a turning point," said Mark Zandi, chief economist at research firm Moody's Analytics. "I think it'll be a breakout year [in 2016] for wage growth."

If average workers' pay does rise significantly, it should give a nice boost to consumer spending, the key driver of U.S. economic growth. It should also increase consumption among lower- and middle-income households, providing a more balanced pattern of spending that for years has been skewed to wealthy households.

Economic growth in 2016 is projected to remain moderate, but about half a point stronger than this year's pace of a little more than 2 percent.

Moody's estimated that the average pay for full-time workers who have kept their jobs grew 4.1 percent in the third quarter from a year earlier. That's about double the hourly wage increase for all private-sector workers as reported by the Bureau of Labor Statistics, which produces the most commonly cited figures on workers' earnings.

But the labor bureau's report is based on aggregate data that include part-time and new workers, so the overall wage changes are likely to understate the gains of many existing workers. Moody's relies on records of 24 million existing employees from the payroll processor ADP. And they exclude new hires who may be replacing higher-paid baby boomers retiring from their jobs.

A separate study of wages by the Federal Reserve Bank of Atlanta found a similarly improving trend: Median wage and salary growth, after hovering at about a 2 percent annual pace from 2011 through June 2014, has since risen to more than 3 percent, according to the Atlanta Fed. The growth was generally stronger for male and full-time workers, as well as those with college degrees. The median marks the halfway point.

It shouldn't be surprising that wages are creeping higher. The labor market has been tightening across the country, forcing more employers to offer higher pay to recruit and retain workers. Thirteen states, up from five a year earlier, had a jobless rate of 4 percent or less in November, including Minnesota at 3.5 percent.

The jobless rate nationwide was 5 percent in November.

At 2.3 percent, Iowa City, Iowa, shares the lowest jobless rate with Lincoln, Neb., and is one of 31 metro areas in the nation with a jobless figure of 3 percent or less. Things have gotten so tight in Iowa City that the area sent folks to the Rose Bowl — not just to root for the Hawkeyes football team, but to recruit employees from Southern California, said DaLayne Williamson, workforce services director at the Iowa City Area Development Group, a nonprofit.

She estimates that pay in her region is averaging 3 percent to 5 percent higher than a year earlier, although it's considerably more for skilled and technical positions. Openings at a Whirlpool plant include electrical technicians earning $49,000 a year.

Competition — and pay — will only rise as the U.S. reaches full employment. Most officials at the Fed, which began raising its benchmark interest rate last month after seven years of keeping it at rock bottom, regard 4.7 percent as full employment.

A broader measure of unemployment and underemployment, which includes part-time workers who want full-time jobs, stands at a much higher 9.9 percent of the labor force. But if the economy continues to generate an average of 200,000 jobs or more a month in 2016, as it has for the last three years, both this broader rate and the official jobless figure are likely to hit optimal levels in the coming year.

The ongoing exodus of baby boomers from the workforce and other shifting demographics may also squeeze employers, and that could give workers more bargaining power.

But Jared Bernstein, former chief economist to Vice President Joe Biden, is skeptical that ordinary workers will see a big jump. Labor's share of national income has been declining for decades, which he and other experts attribute to various forces: the declining clout of unions; foreign competition and trade imbalance; rapid technology change and automation, and disproportionately large gains to Wall Street and the financial sector. For now, Bernstein suspects that there may be a larger pool of unemployed, available workers than people assume, and this latent supply could weaken wage growth.

Moreover, wages will get a boost from higher minimum wages taking effect in a number of cities and states.