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In Demand and in Command
The Job Market's Latest Seesaw Pays Off for Applicants

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."

Wages for nonsupervisory workers rose 3.4 percent in the year ended in March, notes Economic Policy Institute Senior Economist Jared Bernstein. That's less than consumer prices rose over that period, but mainly because of the sharp increase in energy prices in that span. In the year ended in March 2004, wages rose only 2.6 percent.

"I think we're awfully close to a tipping point where nominal wage growth begins to beat inflation," Bernstein said.

The real issue he and other economists are trying to figure out is what level of joblessness the nation can handle without generating wage inflation. While the unemployment rate is at its lowest level since 2001, there may still be some slack in the labor market, as the proportion of the population in the labor force is still lower than it was in 2001. Apparently many Americans who stopped working during the recession have not yet elected to look for a job again, but economists think they might now that the balance of power is shifting between workers and employers.

At Vedior, the staffing firm, wages for many jobs are still rising gradually -- but people with specialized skills in accounting, information technology or nursing can demand bigger raises, said Netland, the chief executive. Workers with fewer skills, such as those in a division of his company that provides temporary staff for light industrial tasks and such in California, are seeing more modest raises.

But it's still not much like 2000. "You're seeing a more reasonable approach from employers. They're still cautious, not out there throwing money around to get people at any cost, which is a good thing."

That could change, though, if the job market continues the way it's going. "If this market continues, you could see more raises," he said.

The strong employment situation is driven by companies that are spending money more eagerly -- on both staff and equipment -- than they have for most of the current expansion. Moreover, while economists widely expect consumer spending to slow this year along with the housing market, there are signs that they have not done so yet.

For example, yesterday, major retail chains announced that sales were up 6.6 percent in April over a year earlier at stores open throughout that period. But that partly reflected the Easter holiday falling in April this year.

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