With Minneapolis-St. Paul’s health-care industry booming, scientist Erin Nelson fielded more than 20 unsolicited calls in the past year asking her to consider switching jobs. She took one in September at a 40 percent raise.
“Pay is becoming much more competitive,” said Nelson, 35, who designs research projects for medical-device companies. “It is a nice feeling to have job security, that there are jobs out there.”
While much of the U.S. seems trapped by tepid wage growth — fueling election-year anger among voters and keeping Federal Reserve policy on hold — Minneapolis-St. Paul has been doing quite nicely. The metro area generated 4.9 percent average wage and salary gains, Employment Cost Index figures from the Labor Department released Jan. 29 show. Other cities facing worker shortages have have pushed up pay include Nashville, Tennessee; Portland, Oregon; Seattle, Washington and Dallas, Texas.
That could be welcome news for the central bank, which expects lower U.S. unemployment to pressure wages and lift inflation that’s been under its 2 percent target since 2012. The extent to which hot local labor markets spread nationwide may determine how many times the Fed raises rates, after officials halved their forecast for the number of increases this year to just two.
Fed Chair Janet Yellen expressed disappointment with the weakness in the link between improving labor markets and wages on March 16, at a press conference after a meeting of the Federal Open Market Committee at which officials left interest rates unchanged to help spur price pressures.
“There is certainly scope for further increases in wages,” she told reporters. “The fact that we have not seen any broad-based pickup is one of the factors that suggests to me that there is continued slack.”
The so-called Phillips curve relationship between tightening labor markets and inflation is proving to be more powerful in metropolitan markets like Minneapolis. With the U.S. expansion approaching its seventh birthday in June, an increasing number of regional markets are battling to find workers.
“We are now in the part of the expansion where the labor markets get so tight in some areas that employers increasingly poach workers from each other,” said Bart Hobijn, a former San Francisco Fed researcher who is now economics professor at Arizona State University in Tempe. “This reflects more quits, which results in more switches mainly for wage gains. The tighter the labor market, the more this happens and the bigger the wage gains.”
The U.S. jobless rate is projected to have remained at 4.9 percent in March, according to a Bloomberg survey of economists ahead of Friday’s monthly employment report. The release will also contain the latest read on average hourly earnings, expected to rise 2.2 percent year-over-year. With few signs of wage pressure, the FOMC in March cut its estimate of long-run unemployment, the level consistent with stable inflation, to 4.8 percent from 4.9 percent.
Yet for most cities, the unemployment rate which represents full employment appears to be lower, around 4 to 4.5 percent, Goldman Sachs economists David Mericle and Daan Struyven wrote in a Jan. 22 report. Average inflation tends to rise quite gradually as unemployment declines, then accelerates as the jobless rate moves below 4 percent, they found.
Looking at 13 metro areas, Goldman estimated that each 1 percentage point drop in the unemployment rate results in a 0.3 point gain in inflation excluding food and energy prices.
“Wage growth is finally reviving,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “I believe the Phillips curve is alive and well” and the linkages in local markets is “very convincing.”
Some of the U.S.’s hottest labor markets are getting wage gains well in excess of the roughly 2 percent gains most Americans have been getting.
“We are seeing the talent shortage become a pressure point for wage inflation,” said Kip Wright, senior vice president at ManpowerGroup Inc., the Milwaukee-based staffing company. “As unemployment continues to fall, the availability of qualified resources continues to shrink.”
Some regions continue to struggle. The North York City-Newark, New Jersey metro area, for example, had just a 1.4 percent gain in wages and salaries last year as part of the Employment Cost Index. The Philadelphia region managed only a 1.5 percent gain.
In contrast, Washington County, Oregon, a suburb of Portland, had a 6.4 percent increase in average weekly wages in the third quarter compared to the same period in 2014, according to data released by the U.S. Department of Labor on March 9. The Portland-Vancouver metro area had 4.7 percent unemployment in January, down from 5.8 percent a year earlier, aided by high-technology jobs.
“Along the West Coast, Portland is something of a late-entrant in the non-manufacturing part of the tech industry,” said University of Oregon economist Tim Duy in Eugene. “That sector, which tends to have higher wages, has outperformed.”
Davidson County, Tennessee, which includes Nashville, had a 5.5 percent gain in average weekly wages in the third quarter. The Nashville area had a 3.7 percent unemployment rate in January, down from 5.2 percent a year earlier.
The area, a center of transportation, health care and music industries, has also benefited from “ongoing construction” that is driving growth for the state, said Matthew Murray, economist at the University of Tennessee in Knoxville. “The metro area is just bursting at the seams,” he said.
The Minneapolis-St. Paul area had a 3.9 percent unemployment rate in January and joblessness has averaged 3.2 percent the past six months.
Janae Olinger, of St. Paul, said the competition among employers to hire was “exciting and a bit of a whirlwind.”
“I was offered three different positions the same day,” she said. “It was my lucky day.”After moving from Denver last November, the 28-year-old landed six interviews in a month that led to a $2,000 raise and a job at the University of Minnesota Foundation, where she raises money for scholarships for medical school students.
Nelson, the Minneapolis-St. Paul-based scientist, said the current upturn in interest in employees represents a reversal from 2012-13, when a contract research organization that employed her went out of business.
Today, “there is a shortage of qualified and experienced people,” said Nelson, who has been able to help pay for family trips to Florida and Utah thanks to her current fortune. “They are going back to paying scientists a more typical wage.”