Sep 01, 2015

DCR National Temp Wage Index - September 2015

DCR National Temp Wage Index September 2015

In July 2015, U.S. employers added 215,000 jobs to the economy, according to the U.S. Bureau of Labor Services (BLS). The unemployment rate remained steady at 5.3 percent for the second straight month. The labor force participation rate was also unchanged at 62.9 percent.

Wages increased slightly, with average hourly earnings increasing by 5 cents to $24.99. Over the previous year, wages increased 2.1 percent. The PayScale Index, which measures the change in wages for employed U.S. workers, forecasts a 0.4 percent year-over-year increase for the third quarter of 2015.

Employment increased in several industries, with retail adding 36,000 jobs, food services and drinking places adding 29,000 jobs, healthcare adding 28,000 jobs, professional services adding 27,000 jobs, financial activities adding 17,000 jobs, and manufacturing adding 15,000 jobs. 

The number of U.S. temporary jobs decreased by 8,900 in July 2015 from the previous month. However, on a year-over-year basis, the number of temp jobs is still up by 4.53 percent. The temp penetration rate dropped to 2.037 percent from June’s rate of 2.046 percent.

Year-over-Year Growth in Temp Jobs

Year-over-Year Growth in Temp Jobs

Source: BLS

The Huge Part-Time and Temp Population

According to the new flagship report “World Employment and Social Outlook 2015” by the International Labour Organization (ILO), about 75 percent of all workers in the world are employed on temporary or short-term contracts, in informal jobs, under own-account arrangements, or in unpaid family jobs. The report also reveals that while wage and salaried work is growing worldwide, it only accounts for half of global employment, with wide variations across regions.

Distribution of Employment by Employment Status and Contract Type

Distribution of Employment by Employment Status and Contract Type

Source: ILO

Another trend that the report reveals is the increase in part-time employment, especially among women. In the majority of the countries covered in the report, part-time jobs outpaced gains in full-time jobs between 2009 and 2013. The study shows that more than 60 percent of all workers lack any kind of employment contract.

“These new figures point to an increasingly diversified world of work. In some cases, non-standard forms of work can help get a foothold into the job market. But these emerging trends are also a reflection of the widespread insecurity that’s affecting many workers worldwide today. The shift we’re seeing from the traditional employment relationship to more non-standard forms of employment is in many cases associated with the rise in inequality and poverty rates in many countries.” ~Guy Rider, Director-General of the International Labour Organization

The report also looked at the increasing importance of global supply chains in shaping employment and income patterns. An estimate found that more than one in five jobs worldwide is linked to global supply chains. This means that jobs that contribute to the production of goods and services are consumed or further processed in other countries. The ILO estimates that global unemployment figures reached 201 million in 2014, an increase of 30 million from the start of the global economic crisis in 2008. According to the authors of the ILO report, job stability since the recession has gotten worse in many parts of the world, and any large increases in worker productivity are not filtering down into wage gains for workers.

A separate study by the Organization for Economic Co-operation and Development (OECD) finds that the surge in self-employment and temporary or part-time jobs over the past two decades has been a contributing factor behind the increase in inequality in the world’s industrialized countries. The OECD says that non-standard workers are worse off in terms of some aspects of job quality, such as receiving less training, more job strain, less job security, and lower annual and hourly wages.

Employment Growth (Percentage), 2007-2013

Employment Growth (Percentage), 2007-2013

Source: OECD

College Grads Took Largest Pay Cuts in 2014

According to an Economic Policy Institute (EPI) analysis of data from the Labor Department, workers with bachelor’s degrees saw their wages slip the most in 2014. Workers with bachelor’s degrees had their average hourly wage drop to $29.55 in 2014, down 1.3 percent from the previous year. Those with advanced degrees had earnings fall 2.2 percent to $38.20.

Meanwhile, the hourly income of those with high school degrees remained flat at $16.46. Those who did not finish high school had a 0.6 percent increase in pay to $12.31 per hour.

According to economists at the EPI, there are many factors contributing to these wage trends. Cities and states have been increasing minimum wages, lifting the earnings of the least educated. According to Elise Gould, senior economist at the EPI, there may not be as much of a skills shortage as is commonly thought. While the U.S. has had relatively strong job growth over the past two years, it has been very broad based and there have not been as many jobs created that require college or graduate degrees. Another contributing factor to this trend is that younger Americans are more likely to complete college so the pool of workers with bachelor’s degrees is expanding. William Emmons, an economist at the Federal Reserve Bank of St. Louis, says that these recent grads are receiving lower salaries and are thus pulling down the overall average. According to the EPI, recent grads aged 21 to 24 are earning 2 percent less than they were in 2007, and 2.5 percent less than in 2000. The unemployment rate for recent grads is 7.2 percent, compared to 5.5 percent in 2007, and the underemployment rate is at 14.9 percent, up from 9.6 percent in 2007.

High Turnover Means Service Industry Employers are Struggling to Hire Hourly Workers

A survey by PeopleMatter found that 70 percent of service industry employers are finding it difficult to hire for hourly positions as turnover rates and costs increase. Two-thirds of respondents said that they need more applicants than they receive, and 60 percent are unsatisfied with applicant quality. According to the survey results, turnover is one of the service industry’s largest workforce problems. The annual turnover rate for hourly employees is 49 percent, with an average cost of $4,969 per employee. Respondents also reported year-over-year turnover increases of 39 percent for hourly workers and 314 percent for managers.

Sources of Service Industry Worker Recruiting

Sources of Service Industry Worker Recruiting

Source: PeopleMatter

The Math on Bad Hires

Those working in talent acquisition and talent management know that engaging a bad candidate can be costly in terms of hiring and termination costs, and as well as impacting the morale of existing good workers. According to a recent study, about one in four hires is a mis-hire, and the majority of new hires are merely mediocre.  However, as unemployment continues to decline across the United States, more employers are forced to make hard choices in order to fill vacancies due to a lack of enough resumes or a poor pool of candidates. Often, managers find it tempting to hire the best they have in their applicant pool and move forward, because they need people to fill demand.

According to G&A Partners, a licensed professional employer organization, the math on replacing bad hires results in a high cost for organizations. Replacing a single employee can cost a company upwards of 30 percent of that employee’s annual salary, depending on the position type and skill level. G&A Partners breaks down the costs associated with employee turnover into three main categories: separation costs, replacement costs, and productivity costs.

Turnover Cost as Percentage of Annual Salary

Turnover Cost as Percentage of Annual Salary

Source: G&A Partners

Separation costs are the immediate costs incurred when a bad hire leaves, and include severance pay, unemployment insurance claims, and continued benefits, along with the time HR staff spends conducting exit interviews and going through their off-boarding checklist. Replacement costs include any expenses associated with trying to fill the now vacant position, including the time and money it takes to identify, interview, hire, and train a candidate. Productivity costs are the hardest to quantify, and include the time other employees spend filling in until a new candidate is found, the expertise that the departing worker is taking with them, and the time it takes the replacement worker to reach the level of productivity of their predecessor.

Beyond the financial costs, turnover due to bad hires also results in costs such as time spent by existing employees in helping out the newcomer and time they spend fixing mistakes made by the bad hire.

“Another solid jobs report suggests the economy is gaining strength and keeps the Fed on track to raise rates as early as the next meeting.” ~Sal Guatieri, Senior Economist at BMO Capital Markets