The U.S. Economy Is Doing Fine — Just Don't Expect A Fast Pay Hike

Employers say they plan to hold the line on salary increases in 2020 despite a tight labor market, according to a new survey from pay consulting firm Willis Towers Watson.

Friday, August 9th 2019, 5:24 am

By: News On 6


  • Employers say they plan to hold the line on salary increases in 2020 despite a tight labor market, according to a new survey from pay consulting firm Willis Towers Watson.
  • Most workers can expect pay increases of about 3% next year, on par with annual increases during the last decade.
  • Some employers are feeling uncertain about 2020, Willis Towers Watson said.

The U.S. unemployment rate remains near its lowest level in half a century, but don't get your hopes up for a big raise next year. Employers say they plan to hold the line on salary increases in 2020, according to a new survey from pay consulting firm Willis Towers Watson.

 

Companies expect to offer pay hikes of 3.1% to managers and non-supervisory employees alike next year, according to the cross-industry analysis of 858 companies. Hourly workers and salaried workers who qualify for overtime pay will receive even smaller raises, at 3% and 2.9%, respectively. 

That's in line with the typical pay raises of the last decade, which have hovered at about 3% per year, Willis Towers Watson said. Despite solid U.S. economic growth this year and rising corporate profits, employees aren't seeing many gains in their share of national income. Historically, strong labor markets like the one the U.S. is enjoying creates demand for workers, along with healthy pay increases. 

"Despite an extremely tight labor market, most employers are either not willing or fiscally unable to increase their fixed costs across-the-board by bolstering their salary budgets," Catherine Hartmann, North America Rewards leader at Willis Towers Watson, said in a statement.

The reason, she said, is some employers are "feeling uncertain about what the market will bear in 2020" and are choosing caution in how they use their compensation dollars.

Falling "real" wages

Some workers may actually be falling behind once inflation is factored in. Earlier this year, compensation-data company PayScale examined the gap between nominal wages -- what you're paid on paper -- and a paycheck's actual purchasing power after accounting for inflation, or what economists call "real" wages. The study found that inflation-adjusted employee pay fell 1.3% last year, weakening people's purchasing power. 

That comes at a time when companies are enjoying the biggest boost in decades thanks to the 2017 Tax Cuts and Jobs Act, which slashed taxes for corporations. But critics point out that many companies tapped their growing profits to repurchase shares, which reached a record $1 trillion last year, rather than spend the additional income on higher wages.

If there's a silver lining in Willis Towers' findings, it's that star employees are likely to enjoy bigger bonuses and pay hikes next year. "Many companies are doubling down on providing significantly larger market adjustments to employees in high-skill roles and selective pay raises to their top performers," Hartmann said.

Bonuses, which are typically to reward workers for excellent performance, are projected to increase to 5.9% of a worker's salary in 2020, up from 5.3% in 2018, the survey found.

"Some employers are carving out increase pools for their high-potential and top performing employees," Hartmann said.

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