Benefit Gains Exceed Wage Growth, New Labor Data Show - Sachse Construction
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Benefit Gains Exceed Wage Growth, New Labor Data Show

U.S. employers are boosting benefits—including bonuses and vacation time—at a faster pace than salaries, a move that gives them more flexibility to dial back that compensation if the economy turns sour.

The cost of benefits for private-sector employers rose 3% in June from a year earlier, while the cost of wages and salaries advanced 2.7%, the Labor Department said Tuesday.

Form of PaymentBenefit compensation, including bonuses andvacation time, has grown faster than wagesfor private-sector workers since the end of therecession.Change in compensation, by type, since June2009Source: Labor Department
%Wages and salariesPaid leaveBonus and supplemental payHealth and other insuranceRetirement2010’12’14’16’18-20-10010203040506070

The benefit gain was driven by a nearly 12% increase in bonuses and other forms of supplemental pay. Paid leave, including vacation time, rose 4% in June from a year earlier.

The trend extends a long-running but slow shift in compensation toward benefits and away from baseline salaries.

“Bonuses and supplemental pay speak to labor market conditions, and workers are in a good spot to get a little more,” said Ryan Sutton, a district president for staffing agency Robert Half. “Companies are still reluctant to move base wages up too much. It’s a lot harder to take that away than bonuses.”

The increase in bonus compensation in part reflects lump-sum payments that many large companies, including AT&T Inc. and ComcastCorp. , gave employees after Congress approved a package of tax cuts late last year. After the tax cut, many employers, such as Southwest Airlines Co. and American Airlines Group Inc.,offered bonuses but not wage increases. Southwest said modifying wages would have required negotiating with its union. American didn’t respond to a request for comment on its decision.

Bonuses are closely tied to corporate profits, and while the tax cuts improved bottom lines for many companies, profits have been growing at a strong clip for several years, compensation experts say.

Employers have added jobs for 95 straight months and the number of job openings has exceeded the number of jobless people looking for work.

In such a tight labor market—last month’s 3.9% unemployment rate is just above an 18-year low—using bonuses to recruit and retain workers has become especially common in industries such as nursing and logistics, where workers can easily switch employers.

For instance, 90% of employers offered sign-on bonuses for some physician assistants and nurse practitioners last year, up from 34% five years prior, according to data from Sullivan, Cotter & Associates, a health-care consulting company. Union Pacific Corp. , meanwhile, is dangling bonuses as high as $25,000 for workers such as diesel electricians and train crew members.

The payments allow companies to be more strategic in their spending, said Oliver Cooke, executive director at financial-services recruiter Selby Jennings. “Rather than say we’ll raise base salaries across the entire business and have that fixed cost, you might be able to pick out 10, 50 or 100 people who are deemed strategically important,” he said.

The shift toward one-time bonuses from sustained wage increases is less favorable for workers, said Fatih Guvenen, economics professor at the University of Minnesota.

“Bonuses are never guaranteed,” he said, adding they give companies the flexibility to drop pay perks during a downturn.

All this has happened as workers’ earnings have trended sharply downward. In 1968, for example, the average 25-year-old male employee was making $35,000 a year, adjusted for inflation to 2013 dollars, Mr. Guvenen’s research found. By contrast in 2011, that figure for 25-year-old male employees was closer to $25,000 in 2013 dollars. “This has occurred even as the economy has been growing,” he said.

Natalie Putnam, chief commercial officer at Verst Logistics, said the Kentucky-based warehouse, packaging and shipping company gave $500 bonuses after the tax cut to about 450 employees, including drivers and administrators. It also boosted wages for drivers by $2 to $4 an hour beginning in April for recruiting reasons, not due to tax-related savings, she said. An aging driver workforce and trouble recruiting in a tight labor market have created a shortage, she said.

“There’s just not enough drivers to go around; it’s a crisis,” she said.

Frank VanderSloot, CEO of wellness company Melaleuca Inc., estimated his company is saving a little less than $2 million a year as a result of the tax cut, and has since raised wages around 10% for 850 manufacturing workers in Tennessee and Idaho. The increases are necessary to hire new workers and retain existing ones, he said.

President Trump’s economic advisers argued in a recent paper that growth in overall compensation is a better measure of how workers are faring than wages alone.

As of this month, 623 U.S. employers announced bonuses, pay increases or better benefits related to the tax law, the White House Council of Economic Advisers said Tuesday. The bulk of those, 408, offered a lump-sum payment.

About 100 firms raised wages for their lowest-paid workers, and 95 lifted wages for other employees. Some companies increased retirement contributions, and some took more than one of the actions. The council said more than 6 million U.S. workers in total have directly benefited from the tax overhaul.

“Bonuses and paid leave are the ones growing fastest lately,” Kevin Hassett, chairman of the advisers council, said this month. “Employees appreciate such benefits just as much as cash, and that’s why we look at the sum, rather than one in isolation.”

Some workers would rather see a lasting bump in pay. Brian Foor, a 34-year-old single father working for Lowe’s Co s. in Lumberton, N.C., said he got a one-time bonus of about $225 after the tax cut. Mr. Foor, who has worked at the store for four years and makes about $12 an hour, said he appreciated the lift, but said that his pay hadn’t noticeably changed.

“I thought it would’ve helped a little bit more,” he said. “I’m getting by paycheck to paycheck.”

Lawrence Mishel, an economist at the Economic Policy Institute who formerly worked for several labor unions, said the bonus and benefit growth are more reflective of a several years of falling unemployment than of recent tax cuts.

“Overall wage and compensation growth does not provide much in the way of bragging rights for tax cutters,” he said. “Especially given the expectation of rising wages and compensation amidst low unemployment.”

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