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Worker salaries set to rise in 2016

Published Dec. 29, 2015

WASHINGTON — American workers are poised in 2016 to finally get what they've been missing for years: higher salaries.

Even as the recovery from the Great Recession brought booming corporate profits, most workers' salaries have barely kept up with inflation. But now, as the nation edges ever closer to full employment and with layoffs near historical lows, there are growing indications that ordinary workers are finally starting to reap some of the gains of the 6 1/2-year-old recovery.

A variety of wage and salary statistics — from payroll processors, private analysts and Federal Reserve researchers — indicate that the underlying rate of pay increase for workers has been picking up much more in the last year than commonly thought.

"We're at a turning point," said Mark Zandi, chief economist at research firm Moody's Analytics. "I think it'll be a breakout year (in 2016) for wage growth."

If average workers' pay does rise significantly, it should give a nice boost to consumer spending, the key driver of U.S. economic growth. It should also increase consumption among lower- and middle-income households.

Economic growth next year is projected to remain moderate, but about half a point stronger than this year's pace of a little more than 2 percent.

Moody's estimated that the average pay for full-time workers who have kept their jobs grew 4.1 percent in the third quarter from a year earlier. That's about double the hourly wage increase for all private sector workers as reported by the Bureau of Labor Statistics, which produces the most commonly cited figures on workers' earnings.

But the labor bureau's report is based on aggregate data that include part-time and new workers, so the overall wage changes are likely to understate the gains of many existing workers. Moody's relies on records of 24 million existing employees from payroll processor ADP. And they exclude new hires who may be replacing higher-paid, retiring baby boomers.

It shouldn't be surprising that wages are creeping higher. The labor market has been tightening across the country, forcing more employers to offer higher pay to recruit and retain workers.

The jobless rate nationwide was 5 percent last month. Competition, and pay, will only rise as the United States reaches full employment. Most officials at the Fed, which began raising its benchmark interest rate this month after seven years of keeping it at rock bottom, regard 4.7 percent as full employment.

A broader measure of unemployment and underemployment, which includes part-time workers who want full-time jobs, stands at a much higher 9.9 percent of the labor force. But if the economy continues to generate an average of 200,000 jobs or more a month next year, as it has for the last three years, both this broader rate and the official jobless figure are likely to hit optimal levels in 2016.

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