Paychecks finally making a comeback?
After years of stagnation, wages may finally be starting to move higher.
Aetna (AET) is the latest company to announce an increase in pay. The health insurance giant saying it will raise the salaries of its lowest-paid workers to $16 an hour. About 5700 Aetna employees will benefit.
Yahoo Senior Columnist Michael Santoli says the wage hikes are needed because a drop in unemployment is increasing demand for workers.
“I think this tells you that labor market is getting tighter,” he notes. “Clearly, a lot of big companies feel the need to make sure they can retain people in this economy, which is what you want to see.”
The Labor Department reports unemployment fell to 5.6% in December, the lowest level since June of 2008. However, average salaries only rose 1.7% in 2014. And Santoli says a tightening labor force is what will be the catalyst to get our paychecks higher.
“No big wave washes over businesses and makes them say, ‘Now all of a sudden we’re going to start paying people more,” he points out. “They do it when they have to. And maybe we’re slowly getting to the point where they have to.”
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Santoli points out the decision by Aetna follows similar moves by Starbucks (SBUX) and The Gap (GPS).
“It seems like a budding trend at least,” he says. “And I think it’s companies that definitely have very large domestic labor forces and they have a lot of turnover and hiring and replacing people is a big part of the business-- like Starbucks and Gap.”
So how could it be that a big health insurance company such as Aetna is similar to those retailers?
“Aetna had an interesting rationale in explaining this,” Santoli notes. “They’re saying they are much more of a consumer business than they ever were-- obviously meaning a lot more individuals under Obamacare have to buy health insurance. So therefore, it makes sense to have a workforce that’s more geared to treating that consumer in a different way at a higher level of service.”
Santoli indicates there are several theories for why we haven’t seen more companies boosting salaries yet.
“There’s a lot of talk that one of the reasons wage growth has been so depressed despite the lower unemployment rate recently was that there was pent-up wage deflation,” he points out. “There’s also a demographic effect-- a lot of higher-priced workers through retirement being replaced by younger, cheaper workers.”
But Santoli feels in the end, it’s really all about demand.
“Bottom line: If the unemployment rate keeps going down, we should see a little bit of a lift to wages,” he says.
