MainStreet Macro: Should I Stay or Should I Go?

It’s been called the Great Resignation, the Great Reshuffle, and the Great Reassessment. But for some workers and the companies trying to hire or retain them, things don’t feel so great.

A record 4.5 million workers in the U.S. quit their jobs in November of last year, according to the Bureau of Labor Statistics. Companies are struggling to find and hire people. And the competitive market and rising inflation have employers puzzling over how to fairly compensate both new hires and their legacy employees.

For many workers, wages are a determining factor in the decision whether to stay or go. Employers are figuring out whether they should pay to retain talent and, if so, how much.

With these questions in mind, the ADP Research Institute analyzed the wages of 18 million workers during the last three months of 2021. Here’s what we found.

Wage growth for job holders is at a record high

For the past year or so, job switchers have reaped the rewards of an economy in flux.  As companies swung from mass layoffs in the spring of 2020 to record-high recruiting in 2021, workers that took new jobs were rewarded.

Throughout 2021, the outlook for job switchers kept getting better. At the beginning of the year, a new job came with, on average, a 4.7% pay raise. By the fourth quarter, that pay bump for job switchers had grown to 7.5%. In December, the average worker landed an 8% wage increase by quitting one job for another, a 3.3 percentage-point? Increase from a year earlier. OK?

The hidden headline in the data is not about workers who started new jobs last month. It’s about the workers who stuck with their current employers. Those who had been at the same job for a year or longer were slower to see pay gains.

That’s now starting to change. Wage growth for existing job holders hit 5.9% in December from a year earlier, the biggest increase since we started keeping track in 2014. And that December surge wasn’t a one-month blip. Wage gains for existing employees averaged 5.7% in the last three months of 2021, also an all-time high.

With companies solidly on board with higher pay for loyal workers, the Great Resignation might give way to some reflection in 2022: Maybe it’s time to stay?

Young people are seeing the strongest gains

Wages are extremely heterogeneous, and pay increases vary widely by industry, age group and region. Investigating these differences, we found interesting patterns along generational lines.

Gen Z workers, those aged 16 to 25, have seen double-digit, year-over year wage gains since July.  Yes, any teenager who’s held a job for more than a year during a pandemic deserves a big raise. But in December, their pay surged by 13.1% from the prior year, the biggest jump on record. 

Older workers might have bigger paychecks, but their pay increases were smaller in percentage terms. Millennial wages increased by 9.2% from a year earlier.  Gen X, the most overlooked demographic in history, notched more humble gains of 5.6% in December. 

As for boomers, much has been said about their departure from the workforce in record numbers at younger ages. Their paychecks might hint at a reason for the exodus. While their younger colleagues were rewarded for staying on the job, employees 55 and older saw year-over-year wage gains of just 3.5% in December.

With inflation hitting 7% last month, real wages for boomers actually fell by 3.5% on average, the largest of any age group.

Some employers are upping pay faster than others

If you’re ready to make the leap to a new job, know that bigger doesn’t necessarily mean better.

Workers who joined companies with more than 50 employees saw a roughly 6%, year-over-year pay increase in December. For the smallest companies, with fewer than 50 workers, the increase was 5%.

But companies with between 500 and 1000 employees increased pay the fastest, by 9.1% in December from a year ago. Among companies with more than 1000 employees, new hires landed an average pay increase of 8.3%.

During the last quarter of 2021, for the first time during the pandemic, mid-sized companies accelerated wages faster for new hires than did their larger counterparts. Mid-sized companies also increased the pay of their existing workforce faster than large companies did.

When we look across industries, job switchers saw double-digit wage gains in what we use to call office jobs. (Will they soon be called couch jobs? Kitchen-table jobs?)

In professional business services and information technology, pay for new hires bumped up 12% from a year ago. Financial services wasn’t far behind, at 9.9%.

But many people who need to show up for work in person – and whose earnings are on the low end of the pay scale – have yet to cash in on the Great Wage Hike. In leisure and hospitality, job switchers are actually losing ground or merely holding steady when it comes to pay. Even though restaurants and hotels have had some of the highest quit rates of the Great Resignation, switching jobs within the sector doesn’t pay.

My Take

With prices soaring in so many segments of the economy, it’s natural to wonder whether wage growth will push inflation even higher than the 7% registered in December. 

The answer is no so far. The biggest drivers of recent price increases are goods and materials shortages and surging consumer demand. Worker compensation plays a much smaller role.

We might have nostalgia for the pre-pandemic job market, but the reality is that wages were sluggish for years after the Great Recession ended in 2009. Even with the unemployment rate at record lows, workers saw few gains when their take-home pay was adjusted for even the very low inflation that characterized that time period. 

Whether a worker chooses to stay or go in 2022, wages finally are catching up to market conditions.  That’s not inflation, that’s progress.