Analysis: As job growth accelerates, wages may follow

NEW YORK (Reuters) - Friday’s stronger-than-expected U.S. jobs report raised hopes a labor market recovery was gaining traction, and cast new light on an area that has been a sore spot for many workers: stagnant wages.

Job seekers attend a large career fair at Rutgers University in New Brunswick, New Jersey, January 6, 2011. REUTERS/Mike Segar

Real earnings for U.S. workers -- those accounting for inflation’s effect -- have been flat or lower in six of the past seven months, according to the Bureau of Labor Statistics. Accelerating job growth, by cutting the supply of available workers, could begin to push up pay levels.

U.S. private-sector hiring hit a five-year high in April and the economy added 244,000 jobs outside of farming, far above the 186,000 economists expected. The government report sparked a stock market rally amid hope U.S. job growth was finally accelerating.

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Staffing sector executives and analysts, who see emerging labor trends before they appear in the wider jobs market, say stronger demand for workers is, in certain areas, lifting pay for temporary workers.

That could indicate wages for other workers, not just temps, are poised to rise with a recovering U.S. economy.

“I think we’re going to see a little wage inflation but it’s really driven by the price of gasoline, more than anything else,” said Roy Krause, Chief Executive of SFN Group.

Employers are increasingly finding workers are unwilling to drive long distances for a job, so they have to offer slightly higher pay, he said.

Analysts say upward pressure on wages is more visible in job categories where unemployment is lower, such as information technology, engineering and finance and accounting.

“Supply of labor is beginning to firm among professional staffing candidates ... allowing staffers to push for higher bill rates,” JP Morgan analyst Andrew Steinerman, who recommends buying staffing stocks, said in a research note.

Staffing shares were up across the board on Friday. ManpowerGroup rose 2 percent, SFN jumped 5.6 percent and Hudson Highland, TrueBlue and Kelly Services each gained about 1 percent.

Adecco, the world’s biggest staffing company by revenue, rose 1.7 percent in Zurich while global No. 2 Randstad gained 2 percent in Amsterdam.


A measure of temporary labor bill rates, compiled by Colorado-based IQNavigator, shows five consecutive monthly increases through April, when rates were at a two-year high.

These rates are an early indicator of upcoming wage inflation, said John Martin, chief operating officer of IQNavigator, whose software lets financial services, technology and other clients manage service costs.

As unemployment has gone down, bill rates have gone up.

“The supply of labor affects the rates that people pay,” Martin said.

Staffing executives, however, caution not to read too much into rising bill rates: they are not synonymous with higher wages.

With fewer federal stimulus dollars available to help balance state budgets, states are taxing current employers more. As states increase unemployment tax rates to pay for jobless benefits, staffing providers -- and other employers -- are passing on the higher costs they face. Thus bill rates go up; wages -- not necessarily.

While some staffing insiders say those higher costs are not enough to depress overall hiring, others disagree.

Every employer is facing higher costs just from state and federal unemployment taxes, said Tig Gilliam, who heads the North American business of Swiss-based Adecco, the world’s largest staffing group.

“It’s one less dollar they now have available to start another job,” Gilliam said. “The impact of the unemployment insurance, and increasing costs of healthcare benefits, those two things alone have a greater impact than gas prices at this point.”

Gilliam, too, sees prospects for higher wages, particularly among higher-skilled professional categories where the unemployment rate is a third of the national average.

More candidates in these areas are picking among multiple offers and have a chance to demand better pay. Such demands are not yet widespread -- but that point will come, he said.

An example is the Canadian oil sands, where skilled engineers are in short supply.

“We’re bringing people from Western Europe to Canada because the price point has reached the level that that’s economical,” Gilliam said. “It’s the most apparent example right now, but it will happen again.”

Reporting by Nick Zieminski, editing by Matthew Lewis