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Employers Plan Modest Wage Growth, Despite Pressures

Posted by Russ Sullivan on Jun 20, 2016 7:34:03 AM

An acute shortage of skilled workers, a state economy near full employment and an increase in the minimum wage all spell accelerating wage increases for 2016, right?

Well, not exactly.

Wages2016.jpgThe persistent and curious disconnect between the tight labor market and wage increases will continue this year, according to the results of the 2016 Associated Industries of Massachusetts General Wage Survey. The study indicates that employers plan to increase wages by a modest 2.78 percent, more than last year’s 2.69 percent, but still less than the 2.9 percent budgeted by employers before the financial crisis of 2008.

The AIM results mirror national and global projections that wages will increase an average of 3 percent this year. The slow pace of wage increases appears to defy conventional economic theory that wages rise as the number of people looking for work falls – a process called the erosion of “spare capacity,” which ensures that all those who want to work do so, and leaving as few resources unemployed as possible.

Baffled economists have attributed the wage-recovery disconnect to everything from the rapid growth of low-wage positions to outsourcing to historically low rates of labor-force participation. But few of those factors pertain to the AIM survey results, which are heavily tilted toward higher-wage manufacturing companies that are particularly challenged by the shortage of qualified production workers.

Current economic conditions only deepen the mystery.

Massachusetts approached full-employment levels this spring as the state jobless rate dropped to 4.2 percent. The AIM Business Confidence Index rose to a 10-month high during May and has remained in positive territory since October 2013.

“The good news is that the Massachusetts and US economies have proven remarkably resilient in the face of weak growth globally that unsettled financial markets at the beginning of the year,” said Raymond G. Torto, Chair of AIM's Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.

So, how to explain a projected 2.78 percent average wage increase?

Start with the fact that many employers remain cautious about increasing wages or expanding amid what has become a wildly inconsistent economy. Just when the nation appears to be building momentum in terms of output and financial performance, the pace of job growth dropped to its lowest level in May since 2010.

Inconsistencies also infuse the Massachusetts growth picture. The shortage of software professionals, scientists and engineers that has prompted some companies to pay five-figure referral bonuses in the white-hot Greater Boston region becomes far less acute in Gateway Cities and in other regions outside the Route 128 technology belt.

Consider as well the relentless development of technology that allows companies to automate products, operations and services. Massachusetts manufacturers now turn out far more product with far fewer people than they did 25 years ago, changing the demand equation from finding large numbers of people to finding smaller numbers of more qualified people.

The lingering question is whether employers will be able to hold to their modest wage-increase budgets in the face of all the upward pressure on compensation. The employers who participate in the AIM General Wage Survey are generally cold-eyed and realistic about their wage plans, but experts believe the tight labor market may force them to raise their projections to attract and retain key performers.

In the meantime, employers are considering multiple strategies to manage compensation costs:

  • Target variable and incentive pay to reward top performers so the company provides incentive without incurring pyramiding year-over-year increases to base wages.
  • Differentiate between top and low performers with a broader range of merit increases, enabling employers to spread their merit dollars further, though at the risk of turnover in a tight market.
  • Budget for adjustment, promotional or emergency wage increases in addition to the planned merit budget, allowing the flexibility to respond to compliance and market pressures, but at the expense of operating costs.

Here are details about some of the factors influencing wages in Massachusetts:

Massachusetts Minimum Wage

The minimum wage increased from $9 to $10 per hour, effective January 1, 2016.  It will increase again on January 1, 2017 to $11.  These increases will strain the year-over-year salary budgets of many employers in two ways.  First, employers with employees at the minimum wage will experience a 22 percent increase to labor costs in those positions. Second, as wages for minimum-wage earners increase, employees in positions currently compensated in the $11-$15 range will be seeking above- average increases to maintain their differential to minimum wage.  Employers will be hard pressed to meet these needs within a 3 percent increase budget.

“Tough to Fill” Positions

Many Massachusetts employers have expressed concern about the shortage of potential employees possessing the necessary skills needed in an increasingly complex economy.  Filling these positions will result in newer employees entering the work force at wages equal to, or higher than, existing employees with more years of experience.  Employers will thus face internal pressure to dedicate additional dollars to experienced employees to maintain internal equity.  A detailed discussion of “tough to fill” positions is included in the AIM 2016 General Wage Survey summary, including listings of positions experiencing the largest annual increase from 2015 to 2016.

Managing Poor Performers

For the fourth year in a row, participants in the annual AIM General Wage Survey have identified managing low performers as their compensation priority.  The strategic handling of poor performers may provide additional budget strain as low performers exit the work force and employers seek to replace them in a tight employment market.  Strategies for effectively managing performance are discussed in more detail within the AIM 2016 General Wage Survey summary.

Employers will need to choose wisely and set priorities for targeted employee groups.  Treating 3 percent as a hard cap on wage escalation might not be the best option for 2016.

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Topics: AIM General Wage Survey, Compensation, wages

Pioneer Valley Employers Offer Vision for the Future

Posted by Christopher Geehern on Sep 5, 2014 4:17:00 PM

The shortage of qualified employees, punitive regulations and an overly complex state workforce training system were among the issues raised Thursday as more than two dozen AIM-member employers provided feedback for the association’s Blueprint for the Next Century.

Regan.BlueprintThe first of eight regional Blueprint listening sessions brought together companies from throughout the Pioneer Valley for an often animated discussion at the Eastern States Exposition’s Storrowton Tavern. The comments will become part of a long-term plan for growth and prosperity that AIM will develop in conjunction with its 100th anniversary in 2015.

Eugene Cassidy, Executive Director of the Eastern States, an AIM member, set the tone for the discussion in his welcoming remarks:

“I see the Eastern States Exposition as a job generator, providing horsepower to the local economy,” Cassidy told the group.

The most pressing issue facing employers around the table appeared to be finding the qualified people companies need to compete in the global economy. Employers said they struggle to hire workers in a variety of roles, from skilled machinists and assemblers to middle managers to engineers.

The issue is compounded, participants said, by the commonwealth’s byzantine maze of workforce training and funding programs. Many of these programs are helpful, but employers said they involve levels of paperwork that smaller companies do not have the time or resources to navigate.

“It’s really pretty painful to work the process,” one employer said.

The solution? Several employers said they have established successful internships with colleges in western Massachusetts. Others open their doors to public school groups who bring students to tour the opportunities available in manufacturing and other sectors.

Burdensome regulation is also a challenge. Companies acknowledge the need for government to provide oversight of workplace safety, the environment and other issues, but say the aggregation of bureaucratic rules from the state and federal government diverts attention from growing jobs.

“Companies pay 40 percent in taxes and get back all these regulations. It really prevents them from growing,” one employer said.

Participants also talked about establishing a culture of economic success in Massachusetts – among workers, employers and state government. Several cited Midwest states that have made a priority of boosting manufacturing employment.

“Ohio and Texas are more geared to toward celebrating manufacturing and also to creating culture of work in a manufacturing environment,” said a participant.

AIM Executive Vice President of Government Affairs John Regan, who led the discussion, said the Blueprint meetings are intended to provide employers with a means to shape the economic future of the commonwealth.

The association plans to present a preliminary version of the Blueprint for the Next Century to the governor-elect at an AIM Executive Forum on November 14.

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Topics: AIM General Wage Survey, Associated Industries of Massachusetts, Economic Development

Unemployment Insurance Rates Frozen - Finally

Posted by John Regan on Apr 15, 2014 3:05:00 PM

Governor Deval Patrick today signed an Unemployment Insurance rate freeze for 2014, eliminating a $500 million increase on employers that took effect January 1.

StateHouse-resized-600The measure freezing UI contributions at the current Schedule E will still leave the fund used to pay benefits to unemployed people with a balance of approximately $800 million. It marks the sixth consecutive year in which the governor and Legislature have rolled back an automatic increase in employer UI taxes.

“It’s a terrific day for the Massachusetts economy,” said Richard C. Lord, President of Associated Industries of Massachusetts, which led the effort to secure a rate freeze.

“We commend Governor Patrick and the Legislature for approving the freeze before first-quarter Unemployment Insurance bills are due. It’s an action that will prime the pump for job growth and eliminate the potential of Massachusetts having the highest UI rates in the country.”

Employers now look forward to the debate over long-term structural changes to the commonwealth’s UI system. The Senate and House of Representatives have passed separate reform bills that contain a new rate table that decreases the financial burden on high-rated employers with low workforce turnover; multiple-year rate freezes; and an increase to the wage base upon which benefits are calculated.

With the rate issue resolved, employers must now engage with the UI system to settle accounts for the first quarter of 2014. The deadline for filing first quarter taxes is May 30, 2014.

According to the Massachusetts Division of Unemployment Assistance (DUA):

  • All employers must submit employment and wage detail no later than April 30.
  • The rates will be loaded the first two weeks in May.
  • During the week of May 19, the system will open back up for employers to make their quarterly contributions.
  • Contributions are due by May 30.

DUA is updating its Web site to reflect the new schedule and staff members are fully aware of the timeline in case employers have any questions. AIM will inform member employers if any element of the timeline changes.

The division indicates that it will work with individual employers seeking deferrals.

For the first and second quarters, an employer may check off the deferral option and defer up to one third of the contributions due to the following second and third quarters respectively. You may file and pay online by logging into your account at www.mass.gov/dua.

It is your responsibility to file the report before the due date.

If you fail to file on the due date, you may be assessed a penalty. By law, you will be charged interest on all contributions paid after the due date. The interest is 12 percent per year. DUA charges interest on the contributions due starting from the due date until the payment date.

Conversely, the Voluntary Contribution option allows experience-rated employers to make additional UI contributions to reduce their UI contribution rate for the forthcoming calendar year.The Voluntary Contribution process for this year will also be a manual process.

To qualify for the Voluntary Contribution program, an employer:

  • must be eligible for experience rating;
  • must have submitted all Employment and Wage Detail Reports; and
  • must have paid all Unemployment Insurance contributions, interest, and penalties to date.

Topics: AIM General Wage Survey, Unemployment insurance

Unemployment Insurance Rates Frozen - Finally

Posted by John Regan on Apr 15, 2014 12:35:06 PM

Governor Deval Patrick today signed an Unemployment Insurance rate freeze for 2014, eliminating a $500 million increase on employers that took effect January 1.

StateHouse-resized-600The measure freezing UI contributions at the current Schedule E will still leave the fund used to pay benefits to unemployed people with a balance of approximately $800 million. It marks the sixth consecutive year in which the governor and Legislature have rolled back an automatic increase in employer UI taxes.

“It’s a terrific day for the Massachusetts economy,” said Richard C. Lord, President of Associated Industries of Massachusetts, which led the effort to secure a rate freeze.

“We commend Governor Patrick and the Legislature for approving the freeze before first-quarter Unemployment Insurance bills are due. It’s an action that will prime the pump for job growth and eliminate the potential of Massachusetts having the highest UI rates in the country.”

Employers now look forward to the debate over long-term structural changes to the commonwealth’s UI system. The Senate and House of Representatives have passed separate reform bills that contain a new rate table that decreases the financial burden on high-rated employers with low workforce turnover; multiple-year rate freezes; and an increase to the wage base upon which benefits are calculated.

With the rate issue resolved, employers must now engage with the UI system to settle accounts for the first quarter of 2014. The deadline for filing first quarter taxes is May 30, 2014.

According to the Massachusetts Division of Unemployment Assistance (DUA):

  • All employers must submit employment and wage detail no later than April 30.
  • The rates will be loaded the first two weeks in May.
  • During the week of May 19, the system will open back up for employers to make their quarterly contributions.
  • Contributions are due by May 30.

DUA is updating its Web site to reflect the new schedule and staff members are fully aware of the timeline in case employers have any questions. AIM will inform member employers if any element of the timeline changes.

The division indicates that it will work with individual employers seeking deferrals.

For the first and second quarters, an employer may check off the deferral option and defer up to one third of the contributions due to the following second and third quarters respectively. You may file and pay online by logging into your account at www.mass.gov/dua.

It is your responsibility to file the report before the due date.

If you fail to file on the due date, you may be assessed a penalty. By law, you will be charged interest on all contributions paid after the due date. The interest is 12 percent per year. DUA charges interest on the contributions due starting from the due date until the payment date.

Conversely, the Voluntary Contribution option allows experience-rated employers to make additional UI contributions to reduce their UI contribution rate for the forthcoming calendar year.The Voluntary Contribution process for this year will also be a manual process.

To qualify for the Voluntary Contribution program, an employer:

  • must be eligible for experience rating;
  • must have submitted all Employment and Wage Detail Reports; and
  • must have paid all Unemployment Insurance contributions, interest, and penalties to date.

Topics: AIM General Wage Survey, Unemployment insurance

Resumption of Hiring Prompts Employers to Sharpen Compensation Plans

Posted by Karen Choi on May 26, 2011 10:49:00 AM

Economists tell us that 2011 will be the year the recovery gathers momentum and the pace of job creation accelerates.  These analysts maintain that employers will increasingly have to think about hiring and also about retention, as current employees see more job options.

AIM Wage SurveyThe 2011 Associated Industries of Massachusetts General Wage and Executive Compensation survey reports published today reflect both optimism and caution among Massachusetts employers about the direction of the economic recovery:

  • Merit budgets continue to climb. Employers expect to raise salaries by an average of 2.4 percent during 2011, compared to 2.1 percent in 2010.
  • Companies planning pay freezes dropped from 35 percent of survey respondents in 2010 to 17 percent in 2011.
  • Seventy percent of survey participants are replacing open positions and critical hires. Another 25 percent report normal recruitment activity.  Only 1 percent of companies report a hiring freeze for 2011.
  • Steady resumption of bonus activity, elimination of reduced work hours and furloughs, and reductions of involuntary turnover.

The 212 AIM member employers who participated in the survey paint a picture consistent with recent economic numbers. The 7.8 percent Massachusetts unemployment rate in April, for example, compares favorably to the peak rate of 8.8 percent in October 2099 and the current national unemployment rate of 9 percent.

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And the addition of 19,500 jobs to the Massachusetts economy during April is more significant than the minimal change in the unemployment rate.  Job growth in the manufacturing, education and health services, hospitality and manufacturing point to measured confidence among employers.  Buoyed by strengthened corporate profits and balance sheets, employers now appear poised to resume hiring and restore competitive compensation practices.

But these employers are moving forward cautiously. They realize that Massachusetts has recovered only one-third of the nearly 143,000 jobs that were lost during the last recession, and there are still more than 272,000 residents without a job.

Companies continue to expect turbulent economic news and conduct business with the expectation that we are in a prolonged recovery.

Topics: AIM General Wage Survey, AIM Executive Compensation Survey

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