Hourly wages at American private-sector companies are climbing quickly, a new report finds, suggesting that the United States' economy might be recovering faster than believed. Workers saw their hourly wages rise 4.5 percent in the third quarter of 2014 over the same quarter in 2013, according to the ADP Workforce Vitality Index.
ADP’s report contradicts a recent Bureau of Labor Statistics report that showed hourly wages grew just 2 percent in the third quarter year-over-year—suggesting sluggish growth in line with the average 2-percent annual growth that’s been seen over the five-year economic recovery.
While there are questions over the accuracy of ADP’s new report—partly because it includes bonus and overtime pay in its tally—some economists believe significant U.S. wage increases are indeed underway.
"Wage growth is indeed meaningfully picking up," Mark Zandi, chief economist of Moody's Analytics, told USA Today. He expects that government data will begin to reflect this uptick by early 2015.
Small businesses need to pay attention to wage growth to ensure they’re paying their employees competitively. Employees are more likely to seek new jobs as the job market and pay environment improve. Companies that are slow to adjust their wages risk losing key talent—and will likely have to pay new hires even more.
A recent survey by compensation consultant Towers Watson found that U.S. employers planned to give their non-management employees an average 3-percent raise in 2015. While that outpaces the current 1.7-percent U.S. inflation rate, many workers are still not happy with their current pay. Another survey of 32,000 U.S. workers surveyed by Towers Watson found that only 50 percent felt they were fairly compensated.
Many experts predict that companies will soon face a talent grab and will realize the downfalls of not paying their workers enough.
Drew Hendricks of Inc.com says small employers should be identifying which key employees they can’t afford to lose and give them a raise immediately—before they find better pay elsewhere. That might include the hardest-working, most talented employees, the one employee that might run the show someday and the ones with invaluable skills and experience.
“You have to remember that you're only as strong as your best employees and rewarding their efforts, loyalty, and talents is crucial,” Hendricks writes. “Otherwise, you might get a surprise two-week notice.”
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