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04 Mar. 2020 | Comments (0)
This is the second episode in a 3 part series based on The Conference Board report “US Labor Shortages: Challenges and Solutions.” In this second episode, Gad Levanon, Head of The Conference Board Labor Markets Institute, and Frank Steemers, Associate Economist, discuss the impact of higher wages on the labor market and corporate profits. Based on our Labor Shortages Solutions Survey, raising wages was the most used solution for both recruitment and retention challenges. Given acute labor shortages for blue-collar and manual services occupations, wage acceleration is most prevalent for these workers. At the same time, The Conference Board Salary Increase Budgets Survey for 2020 shows that a combination of slow salary raises for existing workers and rapid wage acceleration for new hires is contributing to historic levels of pay compression — when the wage premium for experience shrinks. Such pay compression is leading to higher labor turnover of more experienced workers who can easily find new jobs in this tight labor market. The acceleration in wages and quit rates, along with slow labor productivity growth, are reducing US corporate profits. With the US economy projected to slow and labor shortages escalating, the pressure on corporate profits is likely to increase in the coming years.