Economic growth is picking up, but will wages keep pace?
In the U.S., salary increase budgets are expected to grow by 3.2 percent in 2018, up from a 3.1 percent increase in 2017 and 3.0 percent in 2016, according to a May forecast.
Salary budgets represent funds that employers are planning to spend on employee compensation but do not necessarily represent the average salary or wage increase that workers will receive.
The 2018 pay projections were reported in Planning Global Compensation Budgets for 2018 by ERI Economic Research Institute, a compensation analytics firm in Irvine, Calif. The firm's projections are based on data from over 20,000 companies and analysis of government statistics, such as the following:
- Gross domestic product in the U.S. is expected to increase by 2.5 percent next year, up from 2.3 percent in 2017 and 1.6 percent in 2016—an improvement but below the Trump administration's goal of 3 percent growth for the economy.
- Inflation is forecast to slow to 2.4 percent, down from 2.7 percent this year but higher than the 1.3 percent reported for 2016.
- The unemployment rate is predicted to fall slightly to 4.6 percent, down from 4.7 percent this year and 4.9 percent in 2016.
Investing in Workers
"The 2018 projections indicate salary increase budgets throughout the majority of the world between 2 percent and 5 percent," said Linda Cox, CCP, global total rewards expert at ERI Economic Research Institute. "The global economy seems to be gaining momentum," she noted, and the U.S. economy is expected to expand due to the current administration's eased fiscal policy, among other factors.
However, wages haven't kept up with rising productivity in the U.S. and elsewhere, while technology has driven the decline in labor's share of national income, Cox pointed out. (For a different viewpoint, see the box below.)
For employers, the economic recovery provides "an opportunity to look at their total rewards strategies and practices" to ensure fair distribution of rewards based on performance for all employee groups, Cox said.
Employers should also ask whether they are preparing their workforce for technological advances, such as artificial intelligence, that will continue to displace jobs.
"A breakthrough in technology fundamentally changing the way people work also requires an investment in human capital to prepare employees for the future," Cox noted.
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Wage Growth Is Low but So Are Inflation and Productivity
Forecasts based on economic data are subject to interpretation, and different economists will judge differently whether the glass is half full or half empty.
Over the last 24 months through March, for instance, U.S. inflation has been pegged at 1.4 percent a year and productivity growth at 0.6 percent, Neil Irwin, senior economics correspondent for The New York Times, recently reported.
"Those are very low numbers," Irwin noted, and "you may expect average worker wages to have risen only 2 percent." However, "the average hourly earnings for nonmanagerial private-sector workers rose 2.4 percent a year in that period," which is "more than we might have expected, with inflation and productivity so weak."
"If anything," Irwin wrote, "the numbers show that workers are capturing more than their share of the spoils from a growing economy."
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Source: Society for Human Resource Management (SHRM)
https://www.shrm.org/ResourcesAndTools/hr-topics/compensation/Pages/2018-salary-budget-forecast.aspx?utm_source=SHRM%20Wednesday%20-%20PublishThis_HRDaily_7.18.16%20(54)&utm_medium=email&utm_content=May%2031%2C%202017&SPMID=00330610&SPJD=07%2F25%2F1996&SPED=04%2F30%2F2018&SPSEG=&spMailingID=29205464&spUserID=ODM1OTI0MDgxMjMS1&spJobID=1044136149&spReportId=MTA0NDEzNjE0OQS2
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