Modest but steady wage gains may continue into the new year

Heading into Friday’s release of the national jobs report for November, we have some tidbits of data to chew on — specifically on the wages part of the labor-market equation.

Average hourly earnings for private-sector workers rose 4% year over year in October. The number’s been bumping around in that range for about a year now.

November’s wage growth is expected to be down just a bit to 3.9%. But pointing in the other direction, ADP just reported that private companies increased wages 4.8% for folks who stayed in their job over the past year. That’s the first uptick in more than two years. 

Meanwhile, the Fed’s Beige Book, covering regional economies, reported that wages overall have continued to move up at a “modest pace,” but wages for “entry-level positions and skilled trades” were “rising robustly” in November. 

Three years ago, the wage picture was great for workers, not so great for the economy.

Amid severe labor shortages, workers had tons of bargaining power, said Dean Baker at the Center for Economic and Policy Research. 

“The reality is, we had wage growth over 6%,” Baker said. “You can’t have that without pretty high inflation. You had to see wage growth come down, and that’s what happened.”

Four percent is pretty much the sweet spot, he added.

Because as workers get more productive, aided by artificial intelligence, automation and better training, employers can afford to give out 4% raises without jacking up prices too much.

Wages after accounting for inflation have been rising since last year. But in a recent Bankrate survey, a majority of workers said their incomes aren’t keeping up with household expenses, said analyst Mark Hamrick. 

“People lost buying power through a couple years of outsized increases in prices,” Hamrick said. “And so, when we are talking about wages rising above the pace of inflation, we’re really talking about sort of recapturing lost buying power.”

Sixty-one percent of workers say they got a raise in the past year. Pretty decent, except it leaves nearly 40% who didn’t. “There is a kind of underclass of workers here,” Hamrick said. “The federal minimum wage hasn’t been increased for many, many years.”

Meanwhile, the cost of working itself is going up, said Marshal Cohen at research firm Circana.

“More employees having to go back to the office and headquarters locations. They’re going to have to have lunches out and buy some new wardrobe,” Cohen said.

But with unemployment low and skilled labor in short supply, workers’ leverage to get higher wages is likely to stay strong into 2025.