One group of workers gets big raises. Most others are out of luck.

Even as the economy hums away, the typical wage increase is only 2%.

By Ben Steverman

Jul 10, 2014 @ 8:58 am EST


Now should be the perfect time for U.S. workers to ask for a raise.

The statistics are there: The unemployment rate fell to 6.1% in June, job openings are up nearly 20% over the past year and companies are flush with cash.

For most employees, though, that's not translating into bargaining power. Hourly pay rose just 2 percent over the past year as employers played hardball with workers, handing out raises only when absolutely necessary.

There's a chance that an era of employer largesse is around the corner as companies pay up to fill all those vacant spots. Wage inflation should accelerate in the near future, says Nuveen Asset Management chief economist Keith Hembre. But for now, employers are clinging to tight-fisted ways that have helped boost corporate profits to record levels. And unless economic conditions change dramatically, they'll continue to be stingy. In this environment, a 2% raise — which falls well below the inflation rate for many everyday consumer items — can seem almost generous (if you squint at it).

Since the recession, many employers halted widely distributed cost-of-living raises. Instead, they're giving big bonuses and salary boosts to a select few. The average pay raise might be 2%, but the extra cash is shared among a small group of employees who have leverage, says Thomas Gimbel, chief executive officer of staffing company LaSalle Network. For them, he says, "Things are better than they've ever been."

These wily pay strategies may also explain why there are so many open jobs. According to data released July 8, there were 4.6 million job openings in the U.S. in May, up from 3.9 million a year before. For key positions, companies are letting job openings stay open until they find exactly the right person, Gimbel says. In the meantime, existing employees must work harder to fill the gap. Then, for the perfect job candidate, they'll pay up, he says. For example, a job listed for a $125,000 salary might be vacant for a year but then filled by someone who demands — and receives — $140,000.

With no experience and lots of competition for entry-level jobs, college graduates have little leverage in negotiating their first job offer. When placing them with companies, Mr. Gimbel sees job seekers not getting very far in their pleas for more money. Employers respond that they'll consider bumping up pay a few months into a job — as long as new employees prove themselves, he says.


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