Employers Try to Hold Line on Wages, With Mixed Success

Workers continue to win significant pay bumps, in part because help remains hard to find: Unemployment in November remained at 3.7%, near a half-century low. The labor force also shrank in November and is smaller than before the pandemic.

Still, a fall in job openings and job-switching has given some employers breathing room on pay raises for existing employees, and on how much new employees can command.

Some wage indicators show modest cooling. The quarterly employment-cost index rose more slowly over the summer than during the spring. And while the November jobs report showed fast wage gains by one measurement—average hourly earnings—there was no similar acceleration in weekly earnings, because the average number of hours worked weekly declined.

“The feeding frenzy of companies poaching each other’s workers has abated somewhat, but the trend of pay hikes remains quite high and is not slowing down by much,” said

Stephen Stanley,

chief economist at Amherst Pierpont, a broker-dealer.

Higher wages are generally good for workers, but wage growth that persistently exceeds growth in worker productivity can lead companies to raise prices more.  

The Federal Reserve is depending on wage growth to moderate to bring inflation back to its 2% target. Chairman

Jerome Powell

said last week that there had been positive developments but that the labor market “shows only tentative signs of rebalancing, and wage growth remains well above levels that would be consistent with 2% inflation.”

Mike Pitts,

president of IVM Inc., a tech-supply company in Indianapolis, has had to raise wages repeatedly to attract new employees, which led existing employees to request raises that account for experience.

“It’s this barrage of microimpacts that just beats down your efforts to stay ahead of these wage gains,” Mr. Pitts said. 

In January, IVM employees will receive a raise of up to 6.5%, intended to be in line with current core inflation, which strips out volatile food and energy components. But reflecting IVM’s efforts to wring productivity gains from the pay bump, only employees who return to the office full time are eligible for the full increase, with lesser boosts for workers who want more remote options.

“We’re trying to give them the flexibility to say, ‘Hey I want to make more, so I’m going to try to make the company more productive,’” Mr. Pitts said.

Nonetheless, companies are less desperately short of labor than earlier this year. In October, job openings were 7% lower than the same time last year.

A common way workers win higher wages is by switching jobs. Job switchers’ pay rose 7.3% over the 12 months ending in October, compared with 5.3% for nonswitchers during that period, according to the Atlanta Fed.

But as employment growth has cooled, so has job switching: 2.6% of workers quit their job in October, compared with 3% in December 2021, the highest ever recorded. “Employers are starting to feel staffed up, so they pull back a little bit,” said

Nick Bunker,

an economist at Indeed, an internet job-search platform. “That means there’s workers who don’t quit their old job, which then means there’s less demand for employers to backfill those positions, so there’s less opportunities for people to switch.”

Angeline Hanser, 19, was hired in January at a home-goods store in Rochester Hills, Mich., as a stocking associate but says their responsibilities have grown over the year to include receiving and packing orders and serving as a cashier. Mx. Hanser, who uses nonbinary pronouns, said that given those added responsibilities, they are “not making what I should be” at $14 an hour.

Still, a raise might not be in the offing, and they said that even holiday-pay arrangements have changed significantly from last year. While last year employees could get extra pay for working during the busiest holiday-shopping days—such as Black Friday—this year the store will pay out $150 bonuses if it meets certain sales thresholds for the season.

Still, Mx. Hanser agreed to come in at 4 a.m. on Black Friday and isn’t planning on looking for a new job.

“It’s a bit stressful to go out and find another job,” they said. “There’s not a lot of jobs close to me. Anything else could be like half an hour to an hour away.”

Companies across the economy are taking a more cautious approach to pay. Many are gravitating toward one-time bonuses for high performers, while limiting larger pay increases to the most in-demand positions.

Despite lower demand for labor in the short run, a diminished long-run supply of labor as a result of reduced immigration and an aging population will allow desirable workers to continue to command wage increases. Meat-processing company

Tyson Foods Inc.

warned investors in its annual report in October that labor supply tightness might require increased wage rates to attract and retain employees.

Boyd Group Services Inc.,

which operates auto-repair shops in the U.S. and Canada, similarly said in November that despite making some progress toward its hiring and retention goals, “further [compensation] increases are needed to address ongoing wage pressure” from the skilled mechanics and technicians it employs.

“During the recovery, there were wage increases for all,” said

Becky Frankiewicz,

chief commercial officer of

ManpowerGroup Inc.,

a staffing firm. “Now it’s going to be wage increases for some, and they’re going to be defined by those with the most in-demand skills.”

Write to Gabriel T. Rubin at gabriel.rubin@wsj.com