Wage Increases for U.S. Workers Not Keeping Up With Inflation

Despite the weak economic recovery, workers are likely to see a pay raise next year -- though a modest one -- a new survey of employers suggests. Employees can expect, on average, base pay to rise 3 percent next year, according to the 2011/2012 U.S. Compensation Planning Survey, released this week by Mercer, a human-resource consultancy.

That modest rise is up slightly from gains of 2.9 percent this year, and 2.7 percent in 2010. Employees at the top of their game, however, can expect to do better, with an average expected increase of 4.4 percent. In more concrete terms, a worker making the current average weekly wage of $788.56 would see a raise of about $24 a week, raising annual earnings to $42,335 from $41,005, based on June data from the Bureau of Labor Statistics, the most recent available.

According to the Mercer survey, nearly all employers -- 97 percent -- plan to increase base pay next year. Further, half of employers polled said they plan to award higher increases next year than in 2011 because of anticipated labor shortages and greater competition among employers for skilled workers.

"Employers realize that in order to hang onto their best employees, they're going to have to reward them," Catherine Hartmann, a principal with Mercer's Rewards consulting business, says in a statement accompanying release of the survey's results. "[And] base pay is still the most important element of the employment deal."

Mercer's survey includes responses from more than 1,200 medium and large employers across the country that employ some 12 million people.

The anticipated 3 percent rise in wages isn't sufficient to keep up with the pace of inflation, notes Ibraiz Tarique, professor of human resources management at Pace University's Lubin School of Business in Manhattan. In the 12 months ending June, consumer prices rose a non-seasonally adjusted 3.6 percent, the BLS reported earlier this month.

Overall, Tarique expects that few employers will grant "good" raises. "I don't think companies can afford to increase base pay," he says.

Moreover, workers will have to work harder to earn more. Tarique expects companies to broaden "pay-for-performance" programs that tie wage increases to output. He also expects that in lieu of raises employers will offer additional forms of non-monetary compensation, such as tools to help workers balance their work and personal lives.

The wage increases calculated by Mercer may appear modest, but they are much more optimistic than similar data compiled by PayScale.com.

PayScale, which examines employee compensation at private employers of all sizes, reported earlier this month that worker compensation essentially has been flat for the past two years. Current data from the three months ending in June show that trend continuing, meaning wages aren't much higher today than they were during the first quarter of 2008.

Wage growth is weakest at smaller companies (those with fewer than 500 employees), which in part explains the discrepancy between the two companies' research, says Al Lee, director of quantitative analysis at PayScale.

When it comes to granting raises, Lee says, "the largest companies have on average been better than both the midsize and the small, overall."

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