Employers Will Have to Raise Wages. They Just Don’t Know It Yet

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Demonstrators in New York in October. They were protesting low wages and poor working conditions.CreditRuth Fremson/The New York Times

American employers are the equivalent of a shopkeeper who has a “Help Wanted” sign permanently on display in his window, but never actually hires anybody. None of the applicants who come in offer the perfect mix of skills, experience and willingness to accept low pay that the shopkeeper is looking for.

That’s one way of reading some key measures of the labor market, updated Tuesday, that shed light on what afflicts the economy and where things will go from here.

According to the latest Labor Department data, employers had 4.8 million positions they were looking to fill in October. That’s up 25 percent in the last year and 125 percent since the start of the economic expansion in mid-2009.

But for all these vacancies, actual hiring isn’t in a similar boom. The number of people hired is up only 12 percent in the last year and 33 percent over the five-year expansion.

Or to look at the same numbers a little differently, the ratio of job openings to actual hiring has been higher in the last few months than it has been at any other time in the history of the data (though that only goes back to 2001).

Job Openings Have Risen Much Faster Than Hiring

Since the current expansion began in mid-2009, employers have increased the number of job openings they say they have, but hiring hasn’t kept pace.

Percent change from July 2009 level
%
100
50
0
Hires
Openings
2010
2011
2012
2013
2014
Oct.

You would expect for that ratio to skyrocket most when the economy and labor market are strong. Employers might have a harder time finding workers at a time of low joblessness, and thus have more unfilled openings. Yet that ratio is higher now than it was in 2006, the strongest year of the last expansion, when the unemployment rate averaged 4.6 percent. It is currently 5.8 percent.

On the surface, it doesn’t make any sense. The jobless rate doesn’t even count millions of people who have left the labor force entirely in recent years and might be coaxed back in. So any employer with a job opening should have no problem hiring. If anything, the ratio of openings to hiring should be lower than it was in the mid-2000s, not higher.

The Ratio of Job Openings to Hiring Has Soared

Despite high unemployment, the ratio of employer openings to workers hired has risen to the highest levels on record.

1.00
0.90
0.80
0.70
0.60
0.50
0.96
2002
2004
2006
2008
2010
2012
2014

Here’s a theory to try to make sense of the disconnect: During the recession, employers got spoiled. When unemployment was near 10 percent, talented workers were lined up outside their door. The workers they did have were terrified of losing their jobs. If you put out word that you had an opening, you could fill the job almost instantly. That’s why the ratio of job openings to hires fell so low in 2009.

As the economy has gotten better the last five years, employers have had more and more job openings, but have been sorely reluctant to accept that it’s not 2009 anymore in terms of what workers they can hire and at what wage.

Yes, unemployment is still elevated, but workers aren’t in nearly as desperate a position as they were then. So to get the kind of talented people they want, employers are going to have to pay more (or offer better benefits or working conditions) than they would have not that long ago.

To see what that looks like on a micro level, I wrote this summer about the trucking industry: Companies are taking a financial hit because they don’t have enough truck drivers — an event that comes after a decade in which truckers’ inflation-adjusted wages have actually fallen slightly.

In effect, there is a standoff between Corporate America and America’s workers. Businesses see demand for their products and want to expand. After years of stagnant wages, workers aren’t prepared to accept these jobs on the terms they are being offered.

Eventually some employers will decide that they are leaving too much business on the table by not offering the pay and benefits and training that will fill their vacant openings. If that happens on a wide enough scale, it will mean that the long-awaited gains in wages for ordinary workers will finally start to arrive.

There are some early hints that this day is coming soon. In the National Federation of Independent Business survey of members released Tuesday, 22 percent of small businesses reported increasing compensation versus 2 percent that said they reduced pay. Their outlook for pay increases in the coming months rose. The November jobs numbers released last week showed a 0.4 percent rise in average hourly wages for private sector workers.

All this is fragmentary evidence, and after years of stagnant wages, we’ll need a lot more solid proof that something has changed before proclaiming a wage boom has arrived. But in this standoff between businesses that want high-skilled workers for minimal pay and workers who want to see raises, one side has to give.

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