Employers are paying up to address labor shortages
Employers are doing what they have to do to address persistent labor shortages: They’re offering more money.
Why it matters: The reopening of the U.S. economy is fueling demand for goods and services. But businesses have struggled to meet that demand because current pay rates aren’t attracting the qualified applicants that employers want.
By the numbers: The June jobs report on Friday showed average hourly earnings were up 0.3% month over month in June.
- This continued growth is notable because it comes on top of a 0.4% gain in May and a 0.7% jump in April.
- On an annualized basis, the past three months of gains represent a 5.9% pace of growth, which is substantially higher than the 2.4% average from the last economic cycle, per Wells Fargo.
What they’re saying: "Getting workers back to the job site has not come cheap," Wells Fargo senior economist Sarah House writes. "Employers have had to pony up in industries where shortages have been particularly acute."
- Lower-wage industries, like leisure, hospitality and retail, which combine to employ 30 million people, reported strong gains.
- Leisure, hospitality and retail accounted for 49% of the 850,000 jobs added in June.
Yes, but: "There is still progress to be made," Indeed Hiring Lab's Nick Bunker writes in an email. "Employment in leisure and hospitality is still 12.9% below its pre-pandemic level."
- The 15.1% pace in leisure and hospitality "reflects the mismatch between demand and supply, which should be resolved over time, leaving wage growth to cool in this sector," says BofA head of U.S. economics' Michelle Meyer. "We would therefore squarely put this in the 'transitory' camp."
All major industries are pacing above 3% — even higher-wage areas like information, financial, professional and business services.
- Morgan Stanley economist Robert Roesner notes that higher-wage industries have also struggled with record job openings and unusually high quit rates.
- "The wage data is starting to show a transition from more idiosyncratic pressures to more broadly based and potentially more persistent pressures," Roesner writes.
The bottom line: Businesses need to be able to sell stuff, but they can’t do it without workers. And as long as demand is outstripping supply, workers will continue to have leverage to ask for more money.