American workers expected to get pay raises in 2016, but in Maryland the future isn't clear

The Baltimore Sun
Will salaries in Maryland increase in 2016?

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 61/2-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 in the last year.

"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."

It shouldn't be surprising that wages would be creeping higher. The labor market has been tightening across the country, forcing more employers to offer higher pay to recruit and retain workers.

In addition, many states have mandated increases to the minimum wage, including Maryland, where the minimum hourly pay increased to $8.25 last July and is slated to bounce another 50 cents next year.

Still, wages have appeared resistant to increases for years, despite economic improvement in other areas. And some said it's not clear how significant potential wage increases will be for the ordinary worker next year either — especially in Maryland, where labor market conditions have lagged.

"The pressure might be on, especially if people are beginning to realize there are other job opportunities available," said Daraius Irani, senior economist at Towson University's Regional Economic Studies Institute. "But I don't think there's an overall pressure to increase wages, especially if firms want to maintain costs and are looking at their corporate dividends and stock price."

Moody's estimated that the average pay for full-time workers in the U.S. 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. 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. 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 an annual pace of about a 2 percent 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.

So far in Maryland, surveys by the Bureau of Labor Statistics and Bureau of Economic Analysis have found little evidence of significant income or wage growth, placing the state's performance behind the gains reported nationally.

But the state's economy appeared to be catching up to the U.S. in recent months. Maryland added more than 50,000 jobs over 12 months through November, up about 2 percent year-over-year. The unemployment rate was 5.2 percent in November.

"Now that labor force trends across the region are on track again, the Mid-Atlantic's high-income economies could be some of the first to see wage growth turnaround over the coming year," economists from the PNC Financial Services Group wrote in a recent market report.

But income growth is likely to lag in the Baltimore region, where many of the new jobs are in lower-paying industries, the firm noted in a separate report.

Meanwhile, positions with mid-range salaries in Maryland are often tied to the public sector, where pay increases are less susceptible to market pressures, Irani said. Especially in an election year, even private firms may be inclined to hold back, he said.

"There's a lot of uncertainty," he said. "It's tough."

The national jobless rate nationwide was 5 percent last month. Most officials at the Fed, which began raising its benchmark interest rate this month after seven years of keeping it at rock bottom, regard 4.7 percent as full employment.

As layoffs have receded, weekly filings for new jobless benefits have fallen this year to numbers not seen since the early 1970s. Gallup polls show workers' "complete satisfaction" with job security rose to a 15-year high in summer 2014.

Jared Bernstein, the former chief economist to Vice President Joe Biden, said he suspects there is a larger pool of unemployed, available workers than people assume, and this latent supply could weaken wage increases. Many prime-age workers, primarily men and mostly without college degrees, dropped out of the job market in the last decade. Nobody knows for sure how many of them could return to the labor force.

Still, employers will almost certainly find it hard not to pay workers more as the economy heads toward full employment. And there's no obvious reason, Bernstein said, why the job market can't continue to create 200,000 jobs a month for the foreseeable future.

Economic growth next year is projected to remain moderate, but about half a point stronger than this year's pace of a little more than 2 percent. Economists are also predicting moderate growth in Maryland.

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.

"We had a great year in 2014, and we're having a good year in 2015," said Robert Shapiro, a former Clinton administration economic advisor and chairman of the consulting firm Sonecon, referring to the projected 2.5 million jobs created this year.

"We don't know whether it's an anomaly or the start of a new trend," he said. But "I think you'll have more people feeling better soon."

dlee@tribpub.com

nsherman@baltsun.com

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