Wage and Employment Growth Accelerating for Millennials

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Millennials are seeing gains in wage and employment growth, according to new data from payroll giant ADP that also found significant gains among older workers who delay retirement.

The ADP Workforce Vitality Index, which measures the total wages paid to the U.S. private sector workforce, is 108 in the second quarter of 2015, growing 4.1 percent from a year ago and slightly higher than the previous quarter. For younger workers, the growth can be attributed mostly to strong growth in wages.

For older workers, the gains are mainly due to increased employment. The increase in employment in the older age group may be a result of more and more workers staying in their current jobs beyond the conventional retirement age while others are crossing the 55 age threshold. Younger workers are also working longer hours, whereas older workers are working less.

“The Vitality Index has several components: wage growth, employment growth and number of hours worked,” said ADP vice president Ahu Yildirmaz, head of the ADP Research Institute. “We have seen this quarter average hourly earnings increase by 2.5 percent year over year. This compares to 1.9 percent during the prior quarter. We see that wages accelerated this quarter. That, along with the employment growth, helped the increase in the Vitality Index.”

The acceleration in growth in wages and employment is consistent with the growth seen in government reports, such as from the U.S. Bureau of Labor Statistics. However, ADP found different trends among different age groups in its payroll data.

“What was interesting this quarter, if you look at the different age groups—Millennials vs. Gen X vs. Baby Boomers—you have different dynamics,” said Yildirmaz. “From a wage and employment growth perspective, the youngest and older workers are doing well, but for different reasons. Millennials are showing the most robust wage growth, of 2.8 percent, while the older workers, Baby Boomers, are showing the most employment growth.”

While the average is 2.4 percent employment growth, the rate for Baby Boomers is 6.6 percent, but that’s mostly due to delayed retirement.

“Employment growth for Baby Boomers is sometimes tricky and artificial because it has something to do with the numbers game,” said Yildirmaz. “What’s happening is Baby Boomers are not retiring. They are delaying their retirement, so they stay in that age group. They are not leaving the labor market, but also some portion of Gen X are aging and coming into that group. The Baby Boomers are further aging, so the workforce composition actually changes.”

Meanwhile, Millennials are seeing their wages grow as employment opportunities increase and they switch jobs.

“One of the things that our data consistently shows is that Millennials have a higher turnover rate,” said Yildirmaz. “They switch jobs much more frequently compared to other age groups. They search for better job opportunities, and they are being rewarded for that because they are able to increase their wages at a much faster rate.”

Whereas a few years ago, Millennials were having trouble finding good jobs after graduating college, the employment situation has now improved. “We definitely are seeing the Millennials coming back to the labor force,” said Yildirmaz. “They come back at a low wage and low salary, so it’s not surprising to see that their wage growth is faster and higher than the average.”

Members of Generation X, in contrast, are seeing their wage growth and employment growth rates roughly in line with the average momentum in the labor markets.

“We are carried along with the labor market momentum,” said Yildirmaz. “It’s like 2 percent growth in wages and 2.4 percent growth in employment.”

Small businesses in general are outpacing larger companies on both wage and employment growth. ADP reported in its National Employment Report that more than half the jobs created nationwide last month occurred in small businesses (see ADP Finds Private Sector Added 237,000 Jobs in June).

“As the economy has gained momentum, smaller companies have benefited more,” said Yildirmaz. “Also, the forces that are bearing down on the economy are generally affecting the largest companies. If you think about the multinationals, and how they are being impacted by the strength in the dollar as well as the energy prices, they are negatively affecting the large companies. But the low energy prices have a positive impact from a small business owner perspective because it lowers their operational cost. The momentum in the economy now is really benefiting the small companies more. They have less exposure from the negative forces and therefore they are doing well in wages as well as in employment growth.”

Another factor behind the wage growth could be the recent increases in the minimum wage that some large cities and states have either proposed or enacted into law. Yildirmaz believes a bigger impact came from major retail chains such as Walmart, Target, TJ Maxx and Marshalls, along with the insurance giant Aetna, which also announced increases in their minimum wages earlier this year.

“Everybody was expecting an immediate result, but wages are sticky,” said Yildirmaz. “It takes time, so now we have started seeing the results.”

The skilled labor shortage in some industries such as manufacturing is also driving up wages, even if employment there remains sluggish.

“Manufacturing, from an employment growth perspective is struggling,” said Yildirmaz. “Because of the high value of the dollar, U.S. manufacturing is being hurt from a job creation perspective. But if you look at manufacturing only from a wage growth perspective, the wage growth in manufacturing is high although the sector in general is not doing well. That is because the skilled jobs in manufacturing fell short. There is a shortage in skilled workers in manufacturing. Therefore there is pressure to increase wages in that sector.”

She expects to see the increase in wages and employment to have a positive impact on consumer spending. “As we continue seeing the employment numbers adding on average 230,000 per month, very consistently, and wage growth has started accelerating now, that will also have an impact on the consumer spending,” she said. “Disposable income will increase and I believe we’re going to see more growth in wages. If the dynamics we see right now with the dollar and oil prices continue, small businesses will continue to be the engine of the economy.”

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