Grand Rapids-area employers raised wages by an average of 5.2 percent this year, an amount that exceeds historical norms as companies adjust pay to attract and retain people in a fiercely tight labor market.
The wage increases for 2022 compare with 4.4 percent average pay raises area employers provided in 2021 across all sectors, according to The Employers’ Association, a Grand Rapids-based human resources nonprofit that annually polls members to gauge wages in the region. The resulting report provides an indicator of market norms and trends, at least among association members, for compensation rates in a time of tight labor markets.
Up until 2021, The Employers’ Association’s annual wage survey found that average pay increases in the Grand Rapids area had been running lower, including 2 percent in 2020.
The higher compensation adjustments began as employers raised pay to attract new workers or lure back people who left the workforce in the early months of the COVID-19 pandemic, said Jason Reep, president of the The Employers’ Association.
One difference the association found this year was that average increases in compensation levels were across both entry-level positions and existing staff, Reep said. In the last two years, employers primarily made the biggest pay adjustments for entry-level jobs.
“One could read into that to say, ‘Hey, we need to make sure that we’re paying attention to and providing equity to other roles in the organization as well. It’s working to create equity beyond just that entry level,” Reep said. “Entry-level rates still did increase. They didn’t stop increasing, they just increased at a less-significant rate than the others did.”
The Employers’ Association’s 2022 wage survey included data from 292 organizations, mostly in Kent and Ottawa counties, for 18 major job groupings, such as production or office, and 348 specific jobs.
The COVID factor
The wage increases for 2022 occurred amid a labor market that was tight well before the pandemic and has since continued to tighten. Michigan’s civilian labor force remains below pre-pandemic levels with a low statewide unemployment rate.
As of September, the state’s labor force of more than 4.9 million people was nearly 80,000 below January 2020, according to the Michigan Department of Technology, Management & Budget.
The state’s unemployment rate for September was 3.7 percent, versus 4 percent in August and 5.2 percent in September 2021.
Locally, the Grand Rapids area had a 3.2-percent unemployment rate in September, which compares to 3.9 percent a year earlier. The civilian labor force within the Grand Rapid metropolitan statistical area did surpass pre-pandemic levels last spring and was 583,500 in September, or 4,000 people more than January 2020.
The labor force challenges led many employers to increase pay to attract and retain workers, Reep said.
“What happened during COVID was because so many people were leaving the workforce at least temporarily, some permanently, it became more difficult to find folks to fill some roles, and so we saw the rates going up as a result of the impact of COVID,” Reep said. However, he noted that “there are lots of factors” driving up wages and “it’s not simply just a COVID thing.”
As the civilian labor force nears or returns to pre-pandemic levels in markets across the state, Reep expects some easing in wage inflation, although tight labor markets will likely persist.
Based on wage analyses The Employers’ Association has been performing for members, the size of pay increases planned for 2023 has eased somewhat, but they remain larger than in the years prior to the pandemic, Reep said. He estimates wage increases for next year may average about 4 percent among Grand Rapids-area employers, as the economy cools in the wake of rising interest rates to address high inflation.
“It’s still difficult. Let’s not oversimplify that, but it’s not as difficult to find good, qualified folks for particular roles and they may not be requiring as much pay adjustment,” Reep said. “The challenge is employees have come to expect a certain rate of pay. They’re like, ‘I don’t know if I’m going to go back over there to work for less. I’ll keep this.’ I don’t think it will continue to increase at this particular rate (5.2 percent). Like all things in the world, it will increase on an annual basis, it’s just how much does it increase.”
Raising the bar for entry-level jobs
A stark example of the accelerated pace of wage increases comes via data from the Grand Rapids office of Express Employment Professionals, which conducts its own wage survey in the market.
Prior to the pandemic, 28 percent of the entry-level jobs that the firm filled paid less than $16 an hour, said David Robb, co-owner and managing director of the Grand Rapids office of Express Employment Professionals. By October of this year, only 5 percent of the entry-level positions the firm placed at manufacturing and distribution companies paid less than $16 an hour.
“Everything’s going up. We keep expecting it to slow down and employers keep saying, ‘Oh, we can’t increase any further.’ I feel like we’ve been saying that for a year, but so far, it hasn’t really slowed down. We keep steadily seeing stuff increase,” Robb said.
Since early 2020 to today, entry-level pay for positions that Express Employment Professionals filled for clients has risen about 25 percent to 35 percent, he said.
As well, many workers today consider $16 an hour as the “absolute minimum” pay rate they’ll accept with an entry-level job offer, Robb said.
“It’s really the classic supply and demand if you look at it from an economic perspective. There is more demand for labor than there is supply, so companies keep trying to raise their wages to compete,” Robb said. “On the flip side, too, the expectations of the worker have shifted as well. They know it’s a job-seeker market.”
More frequent adjustments
Express Employment Professionals has witnessed employers making semi-annual or quarterly pay adjustments to retain staff and keep them from leaving for a higher-paying job elsewhere, Robb said. Employers are also re-evaluating their benefits to retain staff, he said.
Coming out of the pandemic, The Employers’ Association also has observed an increase in companies allowing more flexibility to work remotely, providing discretionary bonuses, attendance awards or profit sharing, Reep said. Employers also are increasingly emphasizing workplace culture as a lure for employees, he said.
At periodic HR roundtable conversations the association hosts with members, compensation and benefits “are always a topic” as professionals try to identify creative ways to retain employees without just resorting to higher pay, Reep said.
“They’re really trying to say, ‘How can we essentially provide more value if we just can’t make too many more adjustments around compensation?” he said. “‘What can we do to add more value for people to stay at the organization?’”
As tight labor markets persist, employers should continue to examine pay and benefit levels with a focus on internal pay equity among employees and external competitiveness in the market with other employers, Reep said.
By regularly reviewing compensation, employers can avoid getting “out of whack” with the market as they compete for employees, Reep said. The trick is balancing their wage competitiveness without hurting the company’s cost structure by raising pay too quickly.
“People really need to stay up to date on this,” he said. “You don’t want to be reactionary.”