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Increasingly tight labor market prompts employers to increase wages, enhance benefits: Beige Book

December 06, 2018

Labor markets tightened further across a broad range of occupations in mid-October through late November, according to the Federal Reserve’s Beige Book report released Wednesday. Firms in more than half of the districts cited employment, production and sometimes capacity expansion had been constrained by an inability to attract and retain qualified workers.

The Beige Book, a collection of observations from the 12 federal regional banks, provides a snapshot of current economic conditions.

Partly the result of labor shortages, employment growth in most districts leaned to the slower side of a modest to moderate pace. Conversely, most reported wage growth tended to the higher side of a modest to moderate pace. In addition to raising wages, firms were enhancing nonwage benefits, including health benefits, profit-sharing, bonuses and paid vacation days.

Overall, reports suggest economies in most districts expanded at a modest or moderate pace, though both Dallas and Philadelphia noted slower growth compared with the prior Beige Book period. St. Louis and Kansas City noted just slight growth. Firms in most districts remained positive; however, optimism has waned in some as contacts cited increased uncertainty from impacts of tariffs, rising interest rates and labor market constraints.

Observations by staffing firms include:

Boston: Most New England staffing firms reported modest to moderate year-over-year revenue growth, with some signs that the pace of growth slowed recently. Staffing firms said labor markets were very tight across industries and occupations. Continued low unemployment made recruiting very challenging. Most staffing firms reported increases in bill and pay rates, ranging from low single-digit increases to 10%; one cited high-level IT jobs as a driving factor in increased bill rates.

Philadelphia: Numerous contacts from many sectors noted that jobs were going unfilled for a lack of qualified labor and that employee retention was a growing problem. One staffing firm noted that its roster of qualified job candidates is essentially tapped out — it has become very difficult to find qualified applicants to replenish its candidate pool. On balance, wage growth continued at a moderate pace. Various firm contacts speak of annual wage increases of about 3%; however, staffing firms in markets with lower unemployment rates report that their average wage is up as high as 6.5% over the prior year.

Richmond: Employment agencies noted an increase in seasonal hiring and expected to post more job openings throughout the holiday season. One staffing agency reported strong demand for all positions and skill levels and stated that “recruitment is the hardest it has ever been.” Staffing firms saw more companies offering permanent positions to temporary employees.

St. Louis: Staffing contacts reported that employees seem to have more leverage than employers for the first time in several years. One contact reported that manufacturing firms were turning down new orders due to worker shortages. Firms, particularly small businesses, continue to use nonwage benefits to attract employees.

Dallas: Demand for staffing services generally remained brisk and broad-based, with particular strength noted in orders for healthcare staff; oilfield services labor; and blue-collar workers such as electricians, welders, and plumbers. A staffing firm said it had become difficult to hire for positions paying less than $15 an hour in Dallas-Fort Worth following Amazon’s announcement to raise its minimum wage.

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