The number of various West Michigan job positions paying $15 to $17 an hour has spiked since early 2020, illustrating how fast employers operating in a tight and fiercely competitive labor market have had to raise wages to attract workers.
In the year before the COVID-19 pandemic hit, just 4 percent of the positions that Express Employment Professionals filled for industrial clients in the Grand Rapids-area market paid $16 to $17 an hour to start. The number jumped to 42 percent by February 2022.
Similar increases occurred for positions that paid $15 to $16 an hour, a pay range that increased from 9 percent of the jobs that Express Employment Professionals filled in 2019 to 35 percent at the end of 2021. The rate peaked at 50 percent at midyear.
“We have been saying this for a while, but we’re seeing the most rapid wage inflation that really ever has been seen in the last several decades,” said David Robb, co-owner and managing director of the Grand Rapids office of Express Employment Professionals. “What we’re really seeing is that floor and minimum of what someone is willing to accept, or minimum of what a company can pay for that entry-level person, has just been increasing for the last two to three years.”
Express Employment Professionals recently issued a compensation report based on 10,000 different jobs that the firm filled for more than 300 clients. The data offer a local snapshot at how compensation has quickly risen amid a worker shortage and reduced labor participation rate.
The placement firm’s data cover light industrial, general labor, warehouse, and entry-level to semi-skilled positions, and represents what people accepted and earned when they started a new job.
Rising compensation levels are most apparent for entry-level and low-skilled jobs, Robb said. More than eight out of 10 people that Express Employment Professionals placed as of April sought $16 an hour or more from employers.
“There’s definitely a lot of awareness by the job seeker right now on just how in demand they are, and a lot of awareness of what people are paying, so people are expecting that and they know if they go to a job and don’t like it they can probably go to another job fairly easily,” Robb said. “There’s definitely a different mindset than several years ago.”
As entry-level pay increased sharply, employers have had to adjust compensation accordingly for existing employees, he said.
Employers need to find a “delicate balance” and ensure they “are not just focusing on wages to hire and then bite yourself in the back with retention issues,” Robb said.
“That floor has really increased, which is pushing everything else up, too. You can’t just change your wages on who you’re hiring. You have to look at all of your existing employees, and you have to look at what’s the next level after entry level and above that, and how do these changes affect everything?” he said. “It’s a complicated decision for employers to figure out what’s best to make sure they’re remaining competitive, but also maintain that internal equity.”
Employers are constantly evaluating pay scales as the labor participation rate remains below pre-pandemic levels, driving the worker shortage and pushing compensation higher, Robb said.
While employers previously adjusted pay 2 percent to 4 percent annually, some companies are now moving to quarterly pay increases, Robb said.
“Now companies are having to evaluate every couple of months. They’re hesitant and they don’t like to do it, but it’s just a necessity. We’ve had companies that maybe increased wages a dollar (an hour) and three months later or six months later they had to do another increase,” Robb said.
West Michigan employers aren’t alone in growing the percentage of positions paying between $15 and $19 an hour. Data from other Express Employment franchises show similar wage trends across the country, Robb said.
Wage pressures tempered somewhat in the first half of 2022 as the labor participation rate rebounded, but they remain a significant component of inflation across the U.S. that has been running at a 40-year high. The latest Consumer Price Index registered 8.6 percent in May as fuel and food prices continued to surge.
Paul Isely, a professor of economics and associate dean in the Seidman College of Business at Grand Valley State University, attributes about half of the inflation rate to sharp wage increases — and those higher costs getting passed on.
The wage data from Express Employment Professionals is “very consistent” with what Isely hears anecdotally across the region and various economic sectors. The biggest wage gains have come in lower wage positions, Isely said.
Isely cites U.S. Bureau of Labor Statistics data that show unit costs to produce a product increased 8 percent from the first quarter of 2020 to the first quarter of 2022. That’s driven up the producer price index by more than 11 percent in the last year, a little less than half of which is attributable to higher labor costs, he said.
“It’s certainly part of what we’re seeing right now, and it’s particularly affecting those industries that had relatively low cost workers,” such as leisure and hospitality, Isely said. “What it’s going to mean is those services and things we’ve gotten used to over the last two decades — the going out to eat, the activities that we can do — all of that is going to become more expensive because those are the wages going up the fastest.”
Both Isely and Robb expect wage pressures on employers to continue as the labor participation rate remains below pre-pandemic levels.
Recent data from monthly surveys with industrial purchasing managers suggest hiring nationally has begun to slow “a little bit,” which should eventually ease wage pressures, Isely said.
“We’re starting to hear firms talk about holding back on their hiring a little bit here until they figure out where things are going,” Isely said. “We’re just seeing the slightest slowdown here right now, so we’re paying close attention to that to see if it gains some acceleration as we go into summer.”
Industrial employers have been responding to the labor market with more than higher pay, Robb said. He’s seen more companies become increasingly flexible with their work schedules.
As people return to work after a year or two away, for example, many may prefer part-time hours. Manufacturers with traditionally rigid production schedules are more willing to accommodate those workers, Robb said.
“The ones that are excelling are getting a lot more creative. If someone says they can give them three days a week with a set schedule, they’re willing to consider that now, where before it used to be, ‘If they can’t fit into our plan, let’s get someone else,’” Robb said. “They are getting much more flexible just because they have to. Some manufacturers are realizing (they would) rather have someone for three days a week than to not have someone at all.”