This blog post is made up of excerpts from ERI’s National Compensation Forecast January 2020 White Paper.
Each quarter, ERI examines the rates at which salaries have increased and provides guidance on the expected increase for the upcoming year. The actual compensation movement in the fourth quarter of 2019 (published January 1, 2020) continued to see salary increases at rates higher than expectations. These rates are calculated using ERI’s Salary Assessor and ERI’s Salary Increase Survey & Forecast.
Specifically, between October 1, 2019, and January 1, 2020, salaries increased at a rate of 0.73%. This rate is higher than the 0.56% expected growth rate for 2019 and the 0.63% expected growth rate for 2020.
From a yearly perspective, salaries grew at a rate of 2.83% between January 2019 and January 2020. Of note, the rate of inflation (CPI) since January 2019 has been 2.2%, which is below that actual compensation growth rate. Strong growth in January 2020 (0.73%) and a decreased inflation rate (2.2%) resulted in real wage growth 0.2% higher than last quarter.
Sources other than ERI’s Salary Assessor have also shown evidence for salary increases in recent quarters. Specifically, the BLS’ Employment Cost Index and the unemployment rate both point to higher wage growth. The BLS’ Employment Cost Index reports a September 2019 growth rate of 0.9% and a 1-year growth rate of 3.0%, which is unchanged since last quarter.
Overall, ERI is expecting nominal compensation rates to continue growing through 2020. This expectation is based on the recent increase noted in ERI’s 2020 Salary Increase Survey & Forecast and supported by the increased trend rates in Salary Assessor data, the Employment Cost Index, and less slack in the labor market.
Furthermore, an unemployment rate of 3.5% points towards a tighter labor market with greater competition for labor. We should note, low unemployment can lead to wage increases, but only when enough slack has been removed from the labor market (Bivens, 2019).
For a deeper look at salary data by year, mean salary by category and forecasts into 2020 by downloading ERI’s National Compensation Forecast January 2020 White Paper.
