ADP reported a pickup in wage growth for the private sector during the third quarter of the year, especially among younger workers switching jobs.

The ADP Workforce Vitality Index, which measures the total wages paid to the U.S. private sector workforce, is 108.9 in the third quarter of 2015, up 5.1 percent from a year ago. 

“While employment growth weakened slightly compared to the first and second quarters of the year, hourly wages this quarter continued to show accelerated growth,” said ADP vice president Ahu Yildirmaz, head of the ADP Research Institute, during a conference call Wednesday. “Most of the increase in the index was primarily driven by wage growth. Wages this quarter continue to show accelerating growth.”

The movement in the index depends on the contributions of wages and hours of workers who have remained in the same jobs from the previous quarter, the wages and hours of workers who switched jobs during the quarter, and employment changes.

Hourly wages for job holders who stay with the same job increased on average by 3.5 percent on a year-over-year basis, a stronger reading than the 2.2 percent cited by the U.S. Bureau of Labor Statistics, Yildirmaz noted.

“We believe that the acceleration in wage growth comes from the tightening labor market and the rising labor shortages in different pockets in selected industries,” she said. “As the labor market improves, more workers are changing jobs with the expectation of better wages. The turnover rate has been slowly climbing. In the third quarter just over 6 percent of workers left their jobs, up from 5.7 percent in the third quarter of last year.”

ADP found that over the past three quarters, job switchers have enjoyed an average wage boost of 6 to 8 percent when they accept new jobs. Workers under the age of 25 are seeing the biggest wage growth, both among job holders and job switchers, with those age 25 to 34 also outperforming the older demographics. The large difference in wage growth among younger job switchers versus older ones may be the result of two factors: Younger workers typically have a much lower base wage, so increases have more impact on their salary growth, and they also tend to be more likely to leave jobs voluntarily in order to improve their compensation.

Workers age 25 to 34 who switch jobs can command a nearly 7 percent increase in wages, but can also get 3.8 percent raises without switching. In contrast, older workers are receiving lower-percentage increases, with 35- to 54-year-old workers seeing average wage growth of 2.9 percent, while the national average across all age groups is 3.5 percent.

The highest wage growth was seen in the manufacturing, leisure and hospitality, and construction industries. Job switchers in the construction trade saw a 19.6 percent hourly wage boost, while those who held onto their jobs saw hourly wage growth of 4.3 percent. Job switchers in manufacturing received a boost in hourly wages of 11.3 percent, while those who held onto their jobs saw 7.2 percent higher wages. In leisure and hospitality, job holders experienced a 5.3 percent boost, but a decline of 9.4 percent if they needed to switch jobs.

Professional services, which includes accounting and tax preparation along with other types of services, almost tied with the average, at 3.8 percent for job holders, although hourly wages went up 5.3 percent for job switchers. Yildirmaz noted there isn’t as much pressure for wage growth in the professional services sector as in the manufacturing and construction industries.

“Last month we saw slightly declining numbers in job creation, but from a wage perspective the acceleration is seen in our numbers, and that was mostly driven by the tightening labor market and more demand for skilled workers,” she said.

TABLE: WAGE GROWTH BY INDUSTRY Q3 2015

Industry Sector

Year Over Year Growth

Holders'  Hourly Wage

Switchers' Hourly Wage

Construction

4.3%

19.6%

Education/Health

3.0%

3.4%

Finance

4.1%

12.6%

Leisure/Hospitality

5.3%

-9.4%

Manufacturing

7.2%

11.3%

Professional Services

3.8%

5.3%

Trade

1.8%

6.5%

Total

3.5%

6.5%

 

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