Wages may be rising faster than Labor data show
Younger workers lead earnings gains, payroll processor ADP says.
Wage growth may be accelerating more rapidly than government data have shown.
Payroll processor ADP said Wednesday that average hourly wages of job holders — employees in the same job at least 12 months — rose 3.5% in the third quarter, up from 2.5% in the second quarter and 1.9% in the first quarter.
By contrast, the Labor Department said that average hourly earnings in September were up just 2.2% from a year ago, roughly in line with the sluggish 2% pace that has marked the recovery.
ADP’s report covers about 24 million U.S. employees whose employers contract with ADP to handle their payrolls, or about 20% of all private-sector workers.
A big reason the firm’s data show sharper pay increases is that it’s measuring raises for individual employees in the same jobs at least a year, says Sophia Koropeckyj, an economist at Moody’s Analytics, which helps ADP compile its figures.
The Labor Department averages wage growth from a sampling of employers across the economy. As a result, average pay hikes have been tempered by the retirement of higher-paid Baby Boomers and the entry into the workforce of lower-paid Millennials, Koropeckyj says.
“We think (ADP) is more accurate,” Koropeckyj says.
Job holders make up the vast majority of workers, ADP says. Pay increases for job switchers — those changing jobs within the last year — are even higher at an average 6.5% the past 12 months.
Younger workers, who switch jobs for better pay more readily, led the earnings gains in the third quarter, with 25- to 34-year-olds snaring increases of 3.8%. Among industries, manufacturing, which is struggling to find skilled workers, hoisted pay by 7.2%, ADP says.
Many economists have been puzzled by the lack of a pickup in wage growth in Labor’s data. The unemployment rate has fallen to a near-normal 5.1% from 10% in 2009, a development that should force employers to lift pay to attract a shrinking the pool of available workers. Some experts say many part-time workers who want full-time jobs and discouraged workers on the sidelines — groups not counted in the unemployment rate — have allowed businesses to keep a lid on raises.
ADP’s data may be skewed by the fact that companies that can afford its services are likely doing better than U.S. businesses overall and so are able to afford bigger raises. Still, the sharp rise in pay gains likely foreshadows a pickup in Labor’s data by early next year, Koropeckyj says.
Economist Jim O’Sullivan of High Frequency Economics says “it’s plausible” ADP is more accurately capturing faster pay growth. But he’s skeptical that demographic changes have curbed the pay gains measured by Labor, given that trend has been occurring for years.