Worker Pay and Benefits Grow at Record Pace, Pressuring Inflation

Worker Pay and Benefits Grow at Record Pace, Pressuring Inflation - WSJ

Source: Program Business, by Neilson

Compensation for American workers increased rapidly in the first quarter, as a tight labor market put more money in workers’ pockets while keeping inflation under control.

Without adjusting for seasonality, business and government employers spent 4.5 percent more on worker costs in the first quarter compared to the same period a year ago, according to the Labor Department on Friday. That was the fastest increase since records began in 2001, and it surpassed 4.0 percent annual growth in the fourth quarter.

On a quarterly basis, compensation for workers increased by 1.4 percent in the first quarter, compared to a 1.0 percent increase in the fourth quarter. The expansion reflected higher wages, salaries, and benefits.

This has allowed households to continue spending and supporting the economy. The Commerce Department reported on Friday that consumer spending increased by 1.1 percent in March. Americans increased their spending on services such as travel and dining, as well as goods such as gasoline and food, demonstrating a willingness to spend despite the highest inflation in four decades.

Workers’ large pay raises reflect their increased bargaining power, but they also threaten to keep inflation high. Economists believe that companies must raise prices to compensate for higher labor costs.

Consumer prices rose 6.6 percent year on year in March, up from the revised 6.3 percent increase in February and the fastest rate since 1982, according to the Commerce Department on Friday.

Workers at Pinches Tacos, a family-owned Mexican restaurant chain with seven locations in Los Angeles and Las Vegas, recently received wage increases. Miguel Anaya, president of Pinches, stated that he increased the pay for a cook from $16 to $20 per hour in order to keep the employee from leaving for another job.

Mr. Anaya added that in a job market where poaching is rampant and labor is scarce, he is increasingly having to offer higher wages to retain kitchen staff. Meanwhile, prices for ingredients such as poultry and pork have risen rapidly.

Due to higher labor and food costs, Pinches increased menu prices for burritos and tacos by about 5% on average at the start of this year, after increasing them by the same amount last summer, according to Mr. Anaya.

“The price for everything, including labor, was just too much for us to bear,” he explained. “There’s only so long you can hold on.”

The wage-price dynamics have implications for the Federal Reserve, which raised its benchmark rate by a quarter-point from near zero in March to tame inflation. More increases are likely to follow, according to central bank officials who will meet next week to discuss their next steps.

“The Fed is closely monitoring the data for signs of a wage-price spiral,” said Rubeela Farooqi, High Frequency Economics’ chief U.S. economist. “These readings, which show no signs of easing, will worry policymakers as they make monetary policy decisions in an environment where the labor market is tight and prices are at a 40-year high.”

Employer demand for workers far outnumbers the available pool of job seekers. According to the Labor Department, there were 11.3 million job openings in February, compared to 6.3 million Americans who were unemployed but looking for work.

Due to the difficulty of recruiting workers in such a tight labor market, employers have been forced to not only raise wages, but also to entice workers with more robust benefits. Benefits increased by 1.8 percent in the first quarter, the fastest quarterly increase since 2004, with gains in management, sales, and manufacturing jobs.

Companies say that higher compensation costs are one of the factors driving them to raise prices on goods and services. They also point to supply-chain disruptions, high energy and commodity prices pushed up by the Ukraine conflict, and strong consumer demand.

Rising prices are reducing wage increases for workers. Adjusted for inflation, private-sector wages and salaries fell 3.3 percent year on year in the first quarter. Restaurant and bar workers defied the trend, with pay increases in the lower-wage sector slightly outpacing inflation, according to a Labor Department report released on Friday.

The high rate of job switching is an important factor that could keep wage gains high. Workers who change jobs typically receive larger pay raises and put pressure on employers to raise pay for current employees.

Some companies believe that increasing pay will be necessary in the future.

“Labor continues to be an area with the greatest inflationary pressure in both professional driver and nondriver salary wages and benefits, and we expect that trend to continue throughout the remainder of the year,” J.B. Hunt’s chief financial officer, John Kuhlow, said on an earnings call last week.

However, some economists believe that as pandemic savings dwindle and Covid-19 case counts fall, more Americans are returning to the labor force. As a result, more workers will be available to fill openings, relieving employers of the need to pay higher wages.

“The labor-force participation rate has begun to rise in earnest over the last several months,” said Ben Herzon, executive director at IHS Markit. “If that continues, it will help to limit the rate of wage growth.”

RSVP Party Rentals, a Las Vegas-based events company, is seeing signs that wage pressures are easing as demand for its services has recovered from earlier in the pandemic, according to President Brad Smithers. The company had to scramble to hire dozens of people. It now has around 70 employees, up from eight earlier in the pandemic and similar to pre-pandemic levels, according to Mr. Smithers.

The majority of the jobs are in logistics—warehouse work, delivery, and event setup and cleanup—but the company has also added office workers. “It’s becoming more difficult to find truck drivers.” “They are in high demand,” he explained.

He estimates that his labor costs are 5% higher than a year ago, but he believes the upward pressure is easing.

“Corporate events are down, and private events are up a little bit,” Mr. Smithers explained. “Some of those guys who worked corporate are coming to us for work.” “It’s gotten better—a good number of people are coming to us for work.”

Is Hybrid The New Normal? Workers Are Back In Person But Only A Few Days A Week

Hybrid work is the new normal as workers go back the office - Los Angeles  Times

Source: Los Angeles Times, by Roger Vincent

People are going back to the office. Not in the same everyday slog they did before the pandemic, but many are back at least a few days a week.

In-office presence varies by industry in Los Angeles County, with tech and entertainment-related businesses in the forefront, but the easing of pandemic safety restrictions in early March has clearly led to an increase in work getting done at the office instead of at home, landlords said.

“Since the mask mandate was lifted, we have seen almost a doubling of daily office populations,” said John Barganski of Brookfield Properties, the largest office landlord in downtown Los Angeles. “That seemed to be the impetus for people to say, ‘Let’s go.’”

Levels of office populations vary among types of businesses, categories of buildings and even the size of companies, with large employers more likely to be back at the office than small ones. But there is one constant: Most people still aren’t going to the office daily because their companies are concocting schedules that allow them to work remotely some of the time.

“Everybody has some version of a hybrid model where it isn’t necessarily five days a week” at the office, Barganski said. “But there are people in our buildings every day, at a much greater magnitude than we’ve experienced throughout the COVID-19 pandemic.”

The population in Brookfield’s downtown buildings has reached about 50% of what it was before the pandemic, he said.

Average office population in the country’s largest metro areas has been up and down with COVID-19 surges. According to Kastle Systems, which provides key-card entry systems used by many companies and tracks patterns of workers’ card swipes, the average population hit a low of 14.6% in mid-April 2020. Last week it was at nearly 43%, with Los Angeles slightly below average at 41%, the highest figure yet during the pandemic.

In a sign that many employers plan to keep people working together, office leasing was fairly steady in the first quarter. Real estate brokerage CBRE reported a net gain of more than 500,000 square feet of leased space in Los Angeles County as some companies expanded their office footprints.

Companies are often returning to the office without making public proclamations about it, landlord Victor Coleman said, perhaps because they blew through previous announced returns as new surges of the pandemic thwarted vows to return after last Labor Day and then after the Christmas holidays.

Larger companies have generally been more aggressive about returning to the office than smaller ones, said Coleman, chief executive of Hudson Pacific Properties, a Los Angeles office landlord and developer. Hudson Pacific owns more than 50 office buildings on the West Coast, along with three movie studios in Hollywood.

Among its large tenants are tech and entertainment companies, including search engine Google, streaming service Netflix and video game giant Riot Games, where employees recently returned to a Tuesday-through-Thursday work schedule in the office. Rioters, as they call themselves, can also come in on Mondays and Fridays if they want to.

The Riot team was surprisingly adept at working remotely, President Dylan Jadeja said, which was a tribute to their resiliency but raised many challenges and wasn’t the optimum way for the company to operate.

“Strategically, we felt that the collaboration model, the creativity that we needed in our business and the spirit of our company necessitated in-office culture,” Jadeja said.

Coleman said smaller tenants have been less aggressive about pulling their employees back into company quarters, which Coleman attributes to various factors.

Many of the biggest employers are focused on technology, entertainment and media, and tend to view their company culture as a key to recruiting and retaining top talent. Their work — such as developing shows, games and other intellectual products — is often team-based and collaborative.

“If you look at the past, the Facebooks, Google, Amazon and Apples of the world built their entire campus facility structure around culture, amenities and collaboration,” he said. “They realize that is at the forefront of their success, so they’re getting back to that.”

Smaller companies are invested in their culture too, he said, but may be reluctant to order workers back to the office because they’re worried that some people will resist or even resign because they’re worried about their safety.

Some may have decided that commuting is unbearable, or they find co-workers annoying and feel more productive working independently.

Small employers are “concerned about employee pushback” that might include quitting, Coleman said. “If they lose 10% of their workforce, it’s going to have a bigger impact” on their ability to do business than it might for a large employer.

Still, many smaller businesses are coming back to hybrid work schedules, he said, though there are differences among types of companies small and large when it comes to toiling together.

Law firms are among the employers reeling their staffs back to the office, but finance, insurance and real estate companies have generally been more slow about ending the mass working-from-home model, Coleman said.

Some law firms and other professional service firms such as accountants and talent managers that serve the burgeoning entertainment creation industry thrived during the pandemic, real estate broker Todd Doney of CBRE said, and are in some cases planning expansions of their offices even though they may still be working mostly remotely.

“They’ve had some of the best years ever,” he said, with increasing revenue and reduced costs. “No travel or entertainment expenses” during the pandemic and “no need to bring people in for training.”

One of the largest office leases signed last quarter was for an entertainment industry company.

Creative Artists Agency agreed to rent 400,000 square feet at a planned new office tower at 1950 Avenue of the Stars in Century City, CBRE said. That’s nearly the same amount of combined space occupied now by CAA and ICM Partners, which CAA is acquiring. CAA plans to occupy its new offices in 2026.

Century City and Playa Vista were among the most active Los Angeles County markets for office leasing in the first quarter as tech, entertainment and media companies increased their office footprints.

Vacancy (unleased space) in L.A. County was 17.8%, about the same as in the previous quarter but slightly up from the first quarter of 2021. Overall vacancy, including offices available for sublease, was high at nearly 25%, about the same as it was in the fourth quarter but up from 22.6% early last year.

Among the tenants that collectively put nearly 700,000 square feet on the market for sublease in the first quarter were Farmers Insurance in Woodland Hills and Scan Health Plan in Long Beach.

“Available sublease space continues to be stubbornly high,” real estate brokerage Savills said, as prosperous, expanding companies instead choose newer buildings with modern amenities where they can build out their offices to their own specifications.

Other large leases in the first quarter in addition to CAA included apparel maker Nike’s decision to occupy more than 93,000 square feet in Playa Vista and law firm Buchalter’s move to downtown L.A.

In January, Brookfield said that Adidas would rent the top two floors of two interconnected buildings at California Market Center, a massive former showroom complex in downtown’s Fashion District that Brookfield spent more than $250 million on to turn into offices for rent. Another apparel maker, Forever 21, is expected to move its headquarters there in what would be another major lease.

Brookfield renovated the center in expectation that it would appeal to tech and media companies but is pleased to attract apparel companies to what was once one of the biggest wholesale showrooms in the country serving the trade, Barganski said. The property is on the edge of the city’s Fashion District.

“I would suggest that fashion and design is growing viable and thriving, and is very desirous of that type of environment,” he said of the center.

Landlords and brokers predict leasing will pick up in the months ahead as tenants that put plans on hold during the pandemic slowdown decide their next moves.

Already searching for substantial chunks of space are some well-known companies, including Amazon, Apple, Peacock television network, Sony, United Talent Agency, automaker Fisker Inc. and the Los Angeles County Metropolitan Transportation Authority.

Many Workers, Particularly at Small Firms, Face High Premiums to Enroll in Family Coverage, Leaving Many in the ‘Family Glitch’

Many Workers, Particularly at Small Firms, Face High Premiums to Enroll in Family  Coverage, Leaving Many in the 'Family Glitch' | KFFSource: Kaiser Family Foundation, by Gary Claxton, Larry Levitt, and Matthew Rae

The Biden Administration recently issued a proposed rule to make it easier for family members of workers offered health insurance at their jobs to qualify for premium tax credits for Marketplace coverage. The proposal aims to address what has been called the “family glitch”. Under the ACA, an individual enrolling in a Marketplace plan is not eligible for a premium tax credit if they are eligible for job-based coverage that is considered affordable and provides minimum value (i.e., covers at least 60% of health expenses on average). Current regulations provide that job-based coverage is considered affordable to a worker and their dependents if the cost of self-only coverage for the worker is less than 9.6 percent of family income, without regard to the cost of adding family members. The proposal would revise that interpretation by assessing the affordability of job-based coverage available for the family members of a worker by comparing the total cost for the whole family (including the worker) to the 9.6 percent threshold. This assessment would measure affordability for members of the family other than the worker. Affordability for the worker himself or herself would continue to be based on the cost of self-only coverage.

The proposed rule explains that the current interpretation leads to cases where family members are considered to have an affordable offer even when they face very high contribution amounts if they want to enroll in that coverage, which the agencies assert is not consistent with the ACA’s purpose of providing access to affordable coverage for everyone. We previously estimated that 5.1 million people are currently caught in this ‘family glitch’.

In this analysis, we use the KFF Employer Health Benefits Survey (EHBS) to look at the shares of workers that might pay significant amounts to enroll families and how these shares vary across firms. These are the workers most likely to benefit from a fix to the family glitch.

Health insurance is expensive. The average premiums in 2021 were $7,739 for single coverage and $22,221 for a family of four. The average contribution amounts for covered workers were $1,299 for single coverage and $5,969 for a family of four. Importantly, there was considerable variation around these averages: for example, ten percent of covered workers were enrolled in a plan with a premium of more than $29,000 for family coverage; and 12% of covered workers were enrolled in a plan with a contribution of at least $10,000 for family coverage. It is the family members of workers in firms with high contributions that are most likely to benefit from the proposed rule change.

Before looking at some of the characteristics of these firms and workers, we should be clear about what these percentages mean. When we say that 12% of covered workers are in a plan that has a worker contribution of at least $10,000, we are not saying that 12% of covered workers actually enroll in family coverage and pay those amounts. Instead, we are saying that 12% of covered workers work at firms where the contribution for a family of four for their largest health plan (or sometimes an average of several plans) is at least $10,000. Surveys do not collect information about all of the health plans each employer may offer, nor are they able to account for potential adjustments that might affect individual workers or families (smoking surcharges, discounts for filling out a health risk assessment, surcharge if spouse is offered coverage at another job). So, while these surveys cannot give precise results on actual costs, they give a pretty good picture of the magnitude of the costs workers face to enroll in the plans that most workers choose.

Workers in small firms face higher contributions for family coverage. Workers in small firms (3-199 workers) on average face higher contributions to enroll in family coverage and are more likely to face very high contribution amounts. The average contribution for a family of four in 2021 was $7,710 for workers in small firms, compared to $5,269 for workers in larger firms. Twenty-nine percent of covered workers in small firms faced a contribution of at least $10,000 for family coverage, compared to only 5% of covered workers in larger firms.

One reason family contributions may be higher in smaller firms is that some small employers only make a contribution toward the cost of self-only coverage, leaving the worker to pay the entire difference between the premium for self-only coverage and the premium for family coverage. Even in firms selecting less comprehensive coverage, this difference can be many thousands of dollars. We estimate that 19% of small firms offering health benefits make little or no additional contribution towards the cost of family coverage. These firms employ about 17% percent of the covered workers enrolled at small firms (3-199 workers).

Workers in the service industry are more likely to face high contributions for family coverage. Contributions for family coverage vary significantly by industry. Covered workers in certain industries are more likely to face high contributions for family coverage while covered workers in other industries (wholesale, transportation, communications, utilities, state and local government) are less likely.

The proposed rule addresses the eligibility for premium tax credits in situations where workers face unaffordable contribution amounts to enroll their family members in job-based coverage. Data from the KFF Employer Health Benefits Survey demonstrates that some workers face very high contribution amounts for family coverage, with 12% facing a contribution of at least $10,000 for a family of four. Workers with coverage through small firms are particularly at risk of high contributions for family coverage, and would therefore benefit from the family glitch fix.

Getting on the Track to Financial Wellness

A study by Lincoln Financial finds that 55% of workers in the U.S. say they are on the right track to achieving financial well being. The study looked into the lives of the right-trackers, and found these five factors contribute to their feelings of financial security and financial success:

  1. 71% have created a financial plan.
  2. 98% are focused on the future.
  3. 78% exercise at least once a week.
  4. 63% feel good about themselves, which makes them more optimistic.
  5. 57% are enrolled in more than three non-medical benefits.

Employees define financial wellness in these terms:

  • 29% Being prepared for unforeseen events that could affect my
  • financial situation.
  • 27% Living comfortably and having control over day-to-day finances.
  • 25% Having financial freedom that allows me to enjoy my life.”
  • 19% Other.

Employer Sponsored Insurance Rate Remains Stable

Since 2009, employer-sponsored insurance has been on the decline in California. A key question around the Affordable Care Act (ACA) was whether the reforms would further erode employer-sponsored insurance coverage. A recent survey by the California HealthCare Foundation finds that employer-sponsored insurance in the state has remained stable from 2013 to 2015. Worker eligibility for employer-sponsored insurance also remained stable, and even increased among some groups. However, the percentage of eligible workers who chose to enroll in employer-sponsored insurance declined from 86.4% in 2013 to 80.2% in 2015, bringing California closer to the national average take-up rate of 79%. This decline could be caused by the availability of alternative coverage options through Medi-Cal and Covered California.

Employment-Based Health Coverage Holds Steady

Sixty-two percent of the non-elderly population had employment-based health overage in 2014, which is the same as in 2013, according to the Census Bureau. The percentage of non-elderly people in the United States with health insurance increased from 2013 (84.6%) to 2014 (88%). The percentage of uninsured when down from 2013 (15.4%) to 2014 (12%). Just over 32 million were uninsured in 2014, down from 41.1 million in 2013. The increase in health coverage among the entire non-elderly population came from growth among people buying health insurance directly from an insurance carrier (up from 8.8% in 2013 to 12.6% in 2014) and from enrollment in public programs (up from 19.3% in 2013 to 21.7% in 2014).

California Employer Health Benefits: Workers Pay the Price

The percentage of employers offering coverage continued to decline in California, according to a report by the California HealthCare Foundation. Only 57% of employers say they provided health insurance to employees in 2015, down from 69% in 2000. Twenty-seven percent reduced benefits or increased cost sharing, and 41% said they were very or somewhat likely to increase employees’ premium contribution in the next year. This trend will have major implications for household budgets. The report also finds the following:

  • 42% of  firms that had  many workers earning $23,000 or less offered health coverage in 2015 compared to 18% in 2014.
  • Health insurance premiums for family coverage grew 4.5%, which is a slower growth rate than in recent years. Family coverage premiums have seen a cumulative 216% increase since 2002, compared to a 37% increase in prices.
  • The average monthly health insurance premium was $573 for single coverage and $1,554 for family coverage in California, including the employer contribution. It was significantly higher than the national average.
  • 40% of workers in small firms faced an annual deductible of at least $1,000 for single coverage, compared to 10% of workers in larger firms.

Workers Are Satisfied with Their Health Benefits

Sixty-six percent of workers are satisfied with their health benefits and express little interest in changing the mix of benefits and wages, according to a study by the Employee Benefits Research Institute and Greenwald & Associates. Fourteen percent would trade wages to get more health benefits, and 20% trade some health benefits for higher wages. Forty-four percent would give up a wage increase to maintain their health coverage.

However, the preference for health benefits over wages seems to be waning. From 2012 to 2015, the percentage of workers who were satisfied with their health benefits fell from 74% to 66%. At the same time, the percentage who want fewer health benefits and higher wages increased from 10% to 20%. If their coverage became taxable, 50% would continue with their level of coverage, up from 31% in 2011. Twenty-nine percent would switch to a less costly plan; 16% would shop for coverage directly from insurers; and 5% would drop coverage.

Forty-four percent want to continue getting coverage the way they do today; 39% want to choose their insurance plan, having their employer pay the same amount it spends toward that insurance, and pay the remaining amounts themselves; and 17% want their employer to give them the money, allowing the worker to decide whether to purchase coverage and how much to spend. Eight in 10 say choice of health plan is extremely important (41%) or very important (39%)

Employees Worry About the Future of the Health Care System

Confidence about today’s health care system has remained fairly level among American workers in recent years, but they are worried about the future according to a survey by the Employee Benefits Research Institute (EBRI). The survey reveals the following:

  • 47% of workers are extremely or very confident about their ability to get the treatments they need today; 33% are confident when they look out over the next 10 years; and 26% are confident when they consider the Medicare years.
  • 42% are confident that they have enough choices about who provides their medical care today; 30% are confident when they look out over the next 10 years; and 25% are confident when they
  • consider the Medicare years.
  • 30% of workers are confident that they can afford health care without financial hardship today, 25% are confident when they look out over the next 10 years, and 24% are confident when they consider the Medicare years. For more information, visit EBRI.org.

How New Technologies are Reshaping the Future of Work

A low-skilled Uber-type job is unsustainable for many people. But the same type of contract job can work for professionals who have skills that are difficult to outsource and are resistant to automation, according to a report by www.thumbtack.com. Technology solutions and the Affordable Care Act have removed obstacles that prevented many people from starting their own businesses.

Skilled professionals without a college education report that gross revenues for their business that are up to $20,000 higher than the median income of other similarly educated workers. Because they are working full time,they tend to earn more than the part-time income of their low-skilled gig economy counterparts.

While the commodity-focused gig economy exists primarily in major metropolitan areas, skilled professional marketplaces are growing and thriving in every pocket of the country. Two-thirds of skilled professional respondents are using technology-powered marketplaces to build and grow their primary business (versus people who are doing this work to earn extra pocket money).

Marco Zappacosta, founder and CEO of Thumbtack said, “Popular discussions about the gig economy have focused on the proliferation of low-skilled jobs, such as Uber drivers, consisting mostly of people looking to earn extra income…But technology is also transforming work for individuals and small businesses, creating unprecedented opportunity for a growing class of skilled professionals.” The report draws on Thumbtack’s proprietary data from tens of thousands of small businesses, as well as the latest economic data, labor statistics and forecasts

Last Updated 05/25/2022

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