Repio Blog

The Young and the Restless: Compensation Growth in Low-Wage Jobs

January 16, 2015 - Ahu Yildirmaz, Ph.D., Human Capital Management, Human Resources

Do you know someone who's under 25, in a low-wage job and thinking about leaving their current position? They're not alone and they're probably better off leaving, according to the most recent findings of the quarterly ADP Workforce Vitality Report.

Compensation for low-wage workers is accelerating at a rapid rate, according to our research. For example, those making less than $20,000 per year in the third quarter of 2014 experienced a year-over-year average wage growth of 3.5 percent. Younger workers (between ages 16 and 24) experienced similar growth, with a 4.4 percent increase in pay. In addition, both low-wage and young workers saw their pay rise significantly higher than the national average (2.7 percent).

So what's driving this trend? In a recent USA Today story, author Paul Davidson suggests that this growth could be related to two factors: higher minimum wages in many states and greater availability of low-paying jobs. More jobs means greater competition for good workers, and that fuels wage growth.

It's also interesting to note that this trend represents a reversal from the start of the latest U.S. economic recovery in 2011. At that time, it was older, higher-paid workers who saw rapid wage growth. Now as younger, lower-wage workers see greater growth in their paychecks, this trend could further boost the U.S. economy since these workers tend to save little and spend most of their wages each month.

Does Loyalty Pay?

Another factor impacting the compensation gains among low-wage workers is turnover. Our research found that workers of all ages who switch jobs frequently experience higher wage growth than loyalists. While Millennials (ages 16-24) experienced the highest compensation growth among all age groups for the third quarter of 2014, those who switched jobs reaped much higher pay increases (8 percent) than those who remained with their current employer (0.7 percent).

There was an even greater disparity among workers earning less than $20,000 each year. In the third quarter of 2014, low-wage switchers saw their wages rise 9.8 percent while low-wage loyalists saw just a 0.7 percent increase.

What This Means for Employers

If your organization hasn't started leveraging data analytics to inform workforce management decisions, it's time to start. At the ADP Research Institute®, we use data analysis to gain a deeper understanding of the U.S. workforce and help uncover actionable insights that empower employers to identify strategies to drive more effective business operations.

For more information click here.

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