Wage Increases in Massachusetts Lag National Pace

Posted by Gretchen Harrison on Jan 13, 2020 8:00:00 AM

Massachusetts employers project lower wage and salary increases, a consistent level of recruitment activity, and moderating health-insurance premium increases for 2020 after navigating a solid but volatile economy during 2019.

HR.Practices2The 2020 AIM HR Practices Report published today shows that companies project a 2.77 percent salary increase budget for 2020, consistent with the 2.71 percent actual increase reported for 2019 but down from 2.86 reported in the 2018 HR Practices survey.

Meanwhile, national salary increase projections for 2020 have increased slightly from the prior year to 3.3 percent. Salary increase trends in Massachusetts have tended to lag national numbers in recent years and the gap has begun to widen.

How does a state with a 2.9 percent unemployment rate, a persistent shortage of skilled workers and an impending demographic cliff show slower wage growth than the rest of the nation?

Survey data suggest:

  • Escalating regulatory costs (minimum wage) and non-wage compensation costs (paid family and medical leave; health insurance) are making employers cautious about increasing pay. Companies generally have a set compensation budget, so increases in these ancillary costs may put downward pressure on wages.
  • The Massachusetts Equal Pay Act may be limiting the degree to which employers are able to offer compensation incentives to “superstar” job candidates.

Members of the AIM Board of Economic Advisers offer additional explanations:

  • Wages are already much higher than the national average in Massachusetts, meaning that increases represent a smaller percentage of total wages.
  • Massachusetts is aging fast. Older workers are at a steadier place in their careers and see slower wage growth. As they retire, they are replaced by less expensive younger workers. This is a natural drag on overall wage growth.
  • The higher-skill workers who dominate the Massachusetts economy get a significant portion of their compensation in non-wage forms like bonuses, commissions and stock options. Projected recruitment activity for 2020 is expected to be comparable with actual recruitment experienced in 2019, which saw a significant increase over 2018 volumes.

The wage and salary increase projections come as unemployment in Massachusetts remains at record low levels. And while the state economy contracted by 0.2 percent during the third quarter, analysts say the downturn does not appear to indicate the beginning of a recession, but rather the capacity limits against which the state is bumping.

These include the barriers to labor force growth presented by an aging population as the departure of baby boomers from the regional workforce continues.

Download the HR Practices Report

Topics: Massachusetts economy, Human Resources, wages

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