In the midst of the second-longest economic recovery in its history, a recent article by the Washington Post has been making waves: The surprisingly high number of Americans getting absolutely no raises.
Wage stagnation is abnormally high relative to unemployment
Unemployment, by several measures, has hit lows which are usually indicative of a healthy economy. However, even with declining to 3.7% (U3) there has been minimal increase in wages. Even more surprising, more than 1 in 7 (or 14%) of workers who haven’t changed jobs have seen no increase in their earnings this past year compared to the 16% in the years immediately after the “Great Recession.” Comparatively, last time <4% U3 unemployment occurred <10% of workers saw no raises.
The financial impact of no raises
While not receiving a raise may seem like a net-neutral to an employee, inflation results in a net-loss in their ability to buy essentials. For an employee making $40,000 annually, a 2% inflation rate represents an average loss of $520 in purchasing power, equal to a month of rent in some markets.
Why aren’t raises happening & what are alternatives?
This is an often debated topic, with theories ranging from the decline of private-sector unions to force employers’ hands, memories of “sticky wages” during the “Great Recession,” or complacency among workers driven by low inflation targets. However, there’s a fourth explanation that has largely been ignored: As many as four in five employees would favor additional benefits over a pay increase. This holds particularly strongly among employees aged <44 years old.
Healthcare is a particularly hot-button topic among this demographic- spiraling annual cost increases has made it a high priority. 64% of millennials reported in Qualtrics’ Millennial study that benefits are extremely or very important to employer loyalty.
The Dallas Business Journal also recently identified Employee Financial Wellness Programs as having potential to empower employees & increase retention. To this end, 85% of employers in 2017 had plans to utilize some form of financial wellness program. Not all of these are created equal- some are classroom trainings, others are self-service tool-boxes, and a select few provide valuable tools and the ability to access funds during emergencies.
With healthcare out-pacing inflation, continuing to offer healthcare may offset wage stagnation. Likewise, financial wellness benefits also provide valued empowerment to employees.
Parting Thoughts
None of this should be taken as an endorsement to not offer raises- even a modest 2% cost-of-living increase can help ensure employees remain financially solvent. In good times, offering a higher raise can certainly drive talent retention and put employees on a firmer financial foundation. However, understanding the role benefits like healthcare and financial wellness programs play in employee recruitment & retention along with how this may counterbalance wage stagnation is essential.
Interested in empowering your employees with a Financial Wellness Platform? FloatMe offers employees the ability to access their wages early, financial education resources, and an expanding library of guides & tools. Employers can learn more here.
