ADP Sees Slight Wage Growth in Q4

Wages grew slightly in the fourth quarter, particularly for people who switched jobs, according to a new report from payroll giant ADP.

The ADP Workforce Vitality Index, which measures the total wages paid to the U.S. private sector workforce, was 106.7 in the fourth quarter of 2014, rising 4.8 percent between the fourth quarter of 2013 and the fourth quarter of 2014.

The number of hours worked declined slightly during the quarter. The wages of job switchers grew at a much faster pace than those who held onto their jobs, though the gap has closed a bit year-over-year, possibly fueled by employers attempting to retain talent by offering more enticing wage increases.

Workforce vitality varied across industries. The strongest growth over the past year has been in construction, which rose 8.4 percent, thanks to a combination of strong employment growth, wage growth and an increase in hours worked. Manufacturing advanced by 6.3 percent in the Workforce Vitality Index due to growth in wages and employment in large companies with more than 1,000 workers.

The leisure and hospitality sector and the trade sector advanced just over 6 percent, due to solid gains in both wages and employment. Financial service workers saw strong wage growth of 5.9 percent, but experienced weak employment growth.

Meanwhile, the weakest index growth occurred in the professional and business services sector and the education and health care sector, mostly due to weak wage growth.

“Professional and business services increased from a vitality perspective, but their increase was less,” said Ahu Yildirmaz, vice president and head of the ADP Research Institute, during a conference call Wednesday. “It was 2.5 percent in the overall index versus, for example, construction increasing by 8.4 percent. Wages are stagnant. We see almost no wage increase compared to a year ago. That’s really the primary reason why the index overall is low. But in the professional and business services sector, we have two segments. We have low-wage business services, such as temp workers, and then we have the professional services, like architects, some technology companies, etc. So there is a mix. From an employment perspective, we are seeing a healthy, robust increase, but the wage increase is not there to help the overall index.”

The Workforce Vitality Index is growing most quickly for younger workers under 25 years of age. During the past four quarters it grew by 8.6 percent. The annual turnover rate for workers under 25 was 49 percent in 2014 compared to an average of 23 percent nationwide, indicating more opportunities in the labor market for this age group. Wages for those in the under-25 group grew more than twice as fast as the wages of any other group.

On the other end of the spectrum, the 55+ segment was second in terms of WVI growth, with the index for these workers increasing 6.5 percent. Wages increased by 2.3 percent, which was slightly lower than the wage growth of the two middle tiers. Workers aged 55+ showed stronger employment growth than the other age groups. This may have been driven by a combination of workers crossing the 55 age threshold and older workers delaying retirement.

“The results vary significantly across age groups,” said Yildirmaz. “We believe this reflects the accumulation of skills and experience and the turnover happening within each age group.”

Wages grew 2.4 percent for full-time workers as opposed to only half a percent for part-time workers. Growing confidence in the labor market seems to have prompted companies to create and hire more full-time positions than to attempt to manage with part-time positions.

“Both wages and employment contributed to the overall increase in WVI for full-time employees,” said Yildirmaz. “We see the index grew much faster for full-time employees, and this was driven by both wages and employment growth. The economy appears to be absorbing involuntary part-timers who would prefer to be working full time. Or perhaps now, as there is growing confidence in the labor market and the overall economy, this may have prompted companies to create and hire more full-time positions than part-time positions.”