In Demand and in Command

The rise in workers' wages and benefits outstripped productivity in the first quarter as employers in some fields competed harder for talent.
The rise in workers' wages and benefits outstripped productivity in the first quarter as employers in some fields competed harder for talent. (By Jahi Chikwendiu -- The Washington Post)
By Neil Irwin
Washington Post Staff Writer
Friday, May 5, 2006

American workers are regaining something they've lacked for five years: the upper hand in negotiations with their employers.

Through the last recession and much of the ensuing recovery, there were more workers looking for jobs than employers looking to hire them. As a result, wages grew more slowly than prices. That dynamic seems to be changing, according to a range of economic data.

"The war for talent is back on," said Gregory Netland, chief executive of Vedior North America, a staffing firm that places 15,000 workers on temporary assignments on any given day.

Companies are still eschewing the bidding wars that were typical in the boom year of 2000, executives said, instead competing for workers in other ways. And workers with few skills have less leverage than those in high-demand fields such as technology and finance. But the slack that typified the nation's labor market from 2001 until last year appears to have dissipated, and wages are starting to rise.

This tightening in the labor market was underscored yesterday by new government data. For most of the past five years, workers' productivity has risen faster than their compensation. But in the first quarter, the value of pay and benefits for workers rose at a 3.6 percent inflation-adjusted annual pace, as their productivity rose only 3.2 percent.

These numbers are subject to big swings quarter to quarter, and other measures of workers' pay show more modest gains. There is little doubt, though, that the market for U.S. workers is tighter than it was even a few months ago. The unemployment rate was 4.7 percent in March, down from 5.1 percent six months earlier. The Labor Department will announce April employment data today, which should indicate whether the trend has continued into the spring.

The data speak to one of the big questions looming over the economy. If the tight labor market leads to wage growth at roughly the same pace as the nation's output rises, it would be welcome news for workers who have seen scant raises in recent years, would support consumer spending and help continue the economic expansion. But if wages grow too fast, it would create inflation, leading the Federal Reserve to try to put the brakes on the economy in a potentially painful manner by raising interest rates aggressively, slowing the economy.

"If the cost of labor rises much further, it's something the Fed will really have to watch," said Jason Schenker, an economist at Wachovia Corp.

SAS Institute Inc., which sells software that businesses use to analyze their operations, shows the dilemma U.S. businesses face in trying to attract workers in a newly tight job market without pushing wages up too quickly.

In 2003, SAS had about 58,000 applicants and hired 800 people. This year, it's on track to have fewer applicants -- about 48,000 -- but 50 percent more jobs to fill.

"The technical talent just does not seem to be out there like it used to be," said Jeff Chambers, the company's vice president for human resources. To keep the 10,000-employee company adequately staffed, it is marketing itself more aggressively on college campuses, and it increased the number of students in its internship program 10 percent this year.

And the company is more willing to pay up for a good employee than in the recent past. "Back in 2000, everybody was banging up wages every chance they got," Chambers said. "Then they just stabilized in 2002 and 2003. Now they're on the upswing again."

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