WASHINGTON -- Wages and salaries rose at a slower pace in the fourth quarter, indicating that workers have had limited success bargaining for pay increases even as the labor market improves.
The 0.5 percent increase in worker pay followed a 0.8 percent advance in the third quarter, the Labor Department said Friday. The agency's employment cost index, which also includes benefits, climbed 0.6 percent in the fourth quarter from the previous three months.
"There's still a lot of slack in the labor market, mostly because of the low participation rate and recent drop in the labor force," Nariman Behravesh, chief economist at IHS Inc. in Lexington, Mass., said before the report. That is "continuing to put some downward pressure on wages -- not that they're falling, but they're not going anywhere, either."
Bigger paychecks have eluded American workers even as employers added more positions in 2014 than at any time in the past 15 years. At the same time, with the unemployment rate approaching the range Federal Reserve policymakers say is consistent with full employment, companies may soon have to consider higher wages to attract and retain workers.
The U.S. economy expanded 2.6 percent in the fourth quarter after a 5 percent advance in the prior three months, another report showed. The slowdown reflected a decline in business spending on equipment and a decrease in military outlays. Consumer purchases increased at a 4.3 percent pace, the fastest since the first quarter of 2006.
The median forecast in a Bloomberg survey of 60 economists called for a 0.6 percent increase in the employment cost gauge. Estimates ranged from gains of 0.3 percent to 0.8 percent. The index measures not only the cost of wages and benefits, but also employer-paid taxes such as Social Security and Medicare.
Wages and salaries typically account for about 70 percent of total employment expenses.
Wages of all employees, including government workers, increased 2.1 percent from the same quarter in 2013, matching the year-over-year rate in the third quarter.
Private wages climbed 0.6 percent in the fourth quarter from the previous three months, when they rose 0.7 percent. Pay for state and local government workers advanced 0.4 percent.
Benefit costs for all workers, which include some bonuses, severance pay, health insurance and paid vacations, rose 0.6 percent for a second straight quarter. Compared with the same three months in 2013, benefit expenses were up 2.6 percent.
Company costs for health benefits advanced 2.4 percent in the fourth quarter from the same period in the previous year.
As of January, companies with 100 or more workers must cover 70 percent of their employees with health insurance, as required under the Obama administration's health overhaul. The mandate won't apply to small businesses until 2016.
The added compensation costs will probably mean some businesses will see revenue strained, Peter Bensen, chief financial officer of Oak Brook, Ill.-based McDonald's Corp., said on a Jan. 23 earnings call.
"We've got national health care impacting 2015 for the first time," Bensen said. "Especially in this first half of the year, U.S. margins will continue to be a little bit under pressure."
The number of available positions at U.S. employers climbed to 4.97 million in November, the most since January 2001, Labor Department data showed earlier this month. There were 1.82 jobless Americans per opening, down from 2.62 in November 2013.
The latest figure is fewer than the 2-to-1 threshold that typically leads to larger pay increases in about six months as employers compete for a shrinking talent pool, according to research by economists at UBS Securities LLC.
A net 17 percent of managers at small businesses said in December that they'll raise wages, the most since September 2007, according to National Federation of Independent Business survey data.
Wages were one disappointing element in an otherwise brightening jobs market last year. Employers added an average 246,000 workers a month to payrolls, the best performance since 1999. The unemployment rate sank to 5.6 percent in December, the lowest since June 2008 and close to the 5.2 percent to 5.5 percent that the Fed defines as full employment.
A Bloomberg survey of economists shows workers will see higher wages this year as the job market tightens. Hourly earnings for employees on company payrolls will advance 2 percent to 3 percent on average, according to 61 of 69 economists surveyed Jan. 5-7. They climbed 1.7 percent in the year through December.
At the same time, the job market still has pockets of weakness. The share of jobless who have been out of work for 27 weeks or longer was 31.9 percent in December, more than twice the average in records dating to 1948.
Fed Chairman Janet Yellen said last year at the central bank's annual conference in Jackson Hole, Wyo., that wage growth is understandably low because businesses that avoided trimming paychecks during the downturn are waiting longer to increase them.
Business on 01/31/2015