Region’s compensation growth lags nation’s

By Doug LeDuc | Greater Fort Wayne Business Weekly

Northeast Indiana Works is encouraging more of the region’s employers to deploy the big guns they have been holding in reserve in the war they have been waging for talent.

Their competitors have been increasing employee earnings enough at the state and national level, on average, to outpace the national inflation rate in the last 10 years, but that has not been the case among all northeast Indiana industries.

“To keep talent here and attract top-notch workers from elsewhere is dependent on a lot of factors, not the least of which are wages and benefits,” Edmond O’Neal, president of Northeast Indiana Works, said in a statement. “The spending power of our workers has been going in the wrong direction, and that impedes our ability to keep workers here or lure workers from other areas of the country.”

The federal Bureau of Labor Statistics’ Consumer Price Index shows U.S. prices rose 18.06 percent since 2007.

Emsi, which is know for its economic modeling research, reported employee earnings rose 21.99 percent nationally, 19.05 percent in Indiana, and 16.46 percent in northeast Indiana during that same period.

The region’s average annual employee earnings for all industries last year was $48,064, including wages and benefits.

With 82,000 workers, manufacturing is the region’s largest employment sector, and it held down northeast Indiana’s average by increasing annual employee earnings during the period 15.15 percent to $65,721, on average.

Across the country, manufacturing employee earnings rose 22.02 percent to $81,248 annually, on average.

With about 50,880 workers, health care was the region’s second largest employing industry. It increased annual employee earnings 25.99 percent to an average of $53,671. Nationally, annual employee earnings rose 19.54 percent to an average of $57,933.

“We’ve seen some employers raise wages and earnings in response to the dearth of available workers but raising wages should not just be a situational occurrence,” said Rick Farrant, a Northeast Indiana Works spokesman. “It’s clear that wages and earnings play a significant role in a person’s interest in staying here or staying in a particular company or coming from someplace else or returning from college or the military.”

Iowa Workforce Development conducts an annual Iowa College Student Survey to identify and evaluate factors influencing university student decisions to stay in the state or leave after graduation.

Results of the survey released last November in the department’s “Retaining Iowa’s Talent” showed that after finding a job in a career best aligned with personal interests, the top motivating factor affecting student decisions to stay or leave Iowa was the perceived earning potential there for the chosen career.

“Now, we may not have the same situation in northeast Indiana, but there’s a likelihood that it’s somewhat similar,” Farrant said. “That shows the importance of wages and earnings in retaining talent and attracting talent.”

The global economy impacts wages as well.

“It’s important to note that we have passed the threshold of, ‘It’s OK to excuse low wages by the cost of living,’” Farrant said. “We are competing, not just domestically but internationally, and the cost of living argument simply doesn’t work anymore.”

Some employers have an easier time than others increasing the price of what they sell to cover the cost of wage and benefit increases, according to the Community Research Institute at Indiana University-Purdue University Fort Wayne.

For companies with increasing profits, percentage gains for owners and investors have outpaced percentage gains for workers since 2000, but generally, wages and benefits “go up as productivity goes up,” said Mark Cullnane, a research assistant there. “If innovations in one industry allow for productivity gains to outstrip another industry, it’s highly likely that earnings in the industry with technological advances and increasing productivity will be more than at that industry that does not have those technological advances, that does not have any of those big jumps in productivity.”

Because levels of education and training can affect an employee’s impact on a company’s sales by contributing to its productivity or the quality of what it sells, higher levels tend to be rewarded with higher wages, said Rachel Blakeman, CRI director.

When they are explaining the concept, Blakeman and Farrant sometimes refer to the 2015 Georgetown University analysis of census data, “The Economic Value of College Majors,” which found college graduates earn $1 million more over a career than high-school graduates, on average.

“We’re seeing that point spread widen,” Blakeman said. “And I don’t see any reason why that’s going to get narrower over time.”

Health-care work typically is accompanied by higher levels of education than manufacturing, which contributes to higher wages and benefits and stronger compensation growth than manufacturing, said Michael Hicks, an economist at Ball State University and director of its Center for Business and Economic Research.

Indiana has had good demand for manufacturing workers, but with the aging of the population, “the fact is its demand for health-care workers has and will continue to be very strong,” he said.

Other forms of training beyond high school also can have a big impact on wages and benefits, and Farrant said the region’s workforce development board offers a number of training programs through WorkOne to help upskill employed individuals who want to move ahead in their careers. Many of the programs are branded as Skill-Link.

“The way these programs work is employers take high-potential employees and put them through these certification-based training programs and presumably once they get the certification, they’re going to get a promotion and a pay increase,” he said. “And then WorkOne will come in on the back end and work to fill the positions that were left vacant by those promotions.”

Some employers in the region have an easier time than others raising prices to cover wage and benefit increases because they follow a business model where they provide a premium product at a premium price.

Geographic characteristics of the customer base can have an impact on that.

“Are you looking at something sold exclusively in northeast Indiana so you’re going to be constrained by the income of your customers in northeast Indiana?” she asked. “If you’re looking at something like orthopedic devices, where you’d actually have a national market, you’re not going to be constrained by what folks in northeast Indiana can pay.”

Employers need to keep in mind that slowing turnover with wage and benefit increases can reduce related costs of finding and orienting new employees, and maintaining the right staffing levels can minimize overtime costs, Blakeman said.

“I’m somewhat optimistic that employers will increasingly begin to look at the long term, if for no other reason than the pain that they’re going through now in trying to find workers,” Farrant said. “I think this situation has been a real eye-opener for a lot of employers across all industries.”

In addition to the wage increases at some places of business in the region, he said “we have had some employers who have waived the requirement that someone have a high-school degree or the equivalent, and we’ve had some employers who are now offering benefits from the first day of employment.”

The region has made increasing wages a priority as it works to develop, attract and retain talent, O’Neal said in the statement.

“While we have seen some employers raise wages and enhance benefits in response to low unemployment and a corresponding dearth of workers, the fact that workers’ earnings generally across the board have not kept up with inflation suggests that more improvement needs to take place.”

Bureau of Labor Statistics data showed last year manufacturing-sector compensation increased 2.7 percent, which was slightly above the average for all workers. Manufacturing wages, on the other hand, increased 2.5 percent, which was a little below the average for all workers.