People are quitting their jobs as if it’s 2007, which may be good news for worker paychecks.
Almost 2.8 million Americans voluntarily left their employers in September, representing 57.5 percent of total separations, based on seasonally adjusted data from the Labor Department. This percentage is the highest since May 2007.
As a result, U.S. workers could see a boost to their paychecks next year amid the labor-market turnover, said Nicholas Colas, chief market strategist at Convergex Group, an institutional equity-trading broker in New York. There’s a “very clear” correlation between resignations and pay raises that should continue because “people quit their jobs for better working conditions or better wages.”
Private-sector employees could see more robust salary increases ahead, according to Bloomberg BNA’s Wage Trend Indicator, designed to predict and interpret compensation trends in the next few months. The forward-looking index rose to 99.4 in the fourth quarter from 99.22 in the third, according to preliminary figures. This marks the fifth consecutive increase and highest level since the three months ended Dec. 31, 2008.
Workers could see their pay go up as much as 2.5 percent on average next year, though it’s unclear how fast this will happen, said Kathryn Kobe, an economist at Economic Consulting Services in Washington, who helped develop and maintains the indicator. That’s because a variety of labor-market measures continue to show “slow and steady improvement.”
Wages rose 2.3 percent in the third quarter from the same period a year ago, the biggest 12-month jump in almost six years, data from the Labor Department show. Voluntary departures lead salary increases by about 15 months, Colas said.
People are emboldened to switch jobs as confidence in the economy rises, Kobe said. The share of Americans who say business conditions are “good” minus the share who say they are “bad” remains positive, based on data from the Conference Board, a New York research group. This differential – at 2.8 percentage points last month, down from 3 points in September – has been positive since June and is near levels last seen in 2007.
As people “vote with their feet and take another job at a higher pay,” this forces some managers to reassess how much they compensate employees, said John Challenger, chief executive officer of Chicago-based Challenger, Gray & Christmas Inc., a human-resources consulting company. Businesses are more willing to invest in their workforce as quits increase, he said.
Wage growth has been “stubbornly held back” in recent years, though there are signs of gains ahead as the U.S. economy gets “closer and closer to full employment,” Challenger said.
At this stage of the expansion, which began more than five years ago, there are more “healthy” indications the labor market has stabilized, Challenger said. The jobless rate fell to 5.8 percent last month, the lowest since 2008, from 5.9 percent in September, Labor Department figures show. Meanwhile, U.S. employers added an average of 228,500 workers to payrolls in January-October, up from 197,300 in the comparable period last year and the most since 1999.
While there isn’t any “immediate danger” for the U.S. economy, a slowdown that affects labor-market turnover and wage gains can be difficult to predict, Kobe said.
There still are pockets of strength, as professions such as welders, plumbers, truck drivers and pipe fitters are in “great demand,” Challenger said. Another “fairly interesting” sign is that turnover among government employees is rising, Colas said. In September, 168,000 government employees quit, up 47 percent from the same period a year ago, Labor Department figures show.
Leaving a job that’s very stable underscores confidence in the economy and suggests some of these workers were lured by higher compensation in the private sector, Colas added.