Employer headaches over labor quality point to stronger US wages

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Employer Headaches Over Labor Quality Point to Stronger U.S. Wages

America's employers say they are finding it harder to find high-quality workers, which could soon fuel a boost in wage growth and help convince the Federal Reserve to hike interest rates.

The Labor Department's monthly jobs report due on Thursday will likely show June was another month of lackluster pay increases, a trend going back to the 2007-09 recession.

However, separate data shows a fast rising share of small business owners say their biggest problem is the quality of labor, suggesting companies could soon raise wages more aggressively to attract talent.

Headaches over worker quality are already leading Garry Floeter's construction firm in Cookeville, Tennessee to offer more money to workers trained to install mechanical systems at hospitals and other commercial buildings.

"I am desperately looking for new people," said Floeter, president of CHC Mechanical Contractors.

He recently had to turn down work at an anesthesiology school because of understaffing and is now recruiting workers from far away in Michigan and Florida.

Problems like this have yet to translate into a clear acceleration of wage gains nationwide.

Average hourly earnings are expected to rise just 2.2 percent in the year through June, according to a Reuters poll of economists ahead of a monthly report on employment due to be released on Thursday.

That would be a continuation of the drab increases of the last five years, which Federal Reserve Chair Janet Yellen has flagged as evidence the labor market remains weak despite a sharp drop in unemployment.

But one reason for optimism is that since 2000, when the National Federation of Independent Business started asking small business owners to name their biggest problem, the pace of wage gains has tracked the ups and downs of their responses on labor quality.

In May, 13 percent said labor quality was their No. 1 problem, and the reading has risen quickly over the last year, recently hitting pre-recession levels.

Worries about labor quality evaporated after the 2001 recession, then started rising again in 2003 before again collapsing in 2008. On each occasion, it seemed to take several months for this ebb and flow to translate into faster or slower wage growth.

So it may be too soon for the recent labor quality issues to fuel big wage gains. But the pattern suggests earnings growth could hit around 3 percent by the end of this year, said Paul Ashworth, an economist at Capital Economics in Toronto. That would be closer to the 3-4 percent range Yellen has said would reign in a healthier labor market.

At the same time, forecasting wages is notoriously difficult.

A constellation of indicators point to fatter paychecks, from a growing number of firms who say they will raise wages to burgeoning consumer optimism over future income. And yet growth in hourly earnings has been remarkably stable - around 2 percent - since 2010.

In May, a Fed economist in Cleveland reviewed several indicators economists view as leading indicators for earnings, including the jobless rate and employer plans to raise wages. None did well.

Many businesses nonetheless appear to be having enough trouble finding the right worker to consider raising wages.

Kelly Services, one of America's largest providers of temporary employees, has had more trouble this year filling orders than it did last year. Not only is it harder to find app developers and engineers, the labor market also looks tighter in the hospitality industry.

George Corona, the chief operations officer, said it is less common now for workers to be overqualified, such as an accountant taking a call center job.

"We're having to go back to customers and talk about wage rates," Corona said.

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