Employers will be handing out smaller pay raises this year because there is a smaller demand for workers in the current economy.
According to a report released by Mercer Human Resources Consulting on Wednesday, surveyed companies said they were giving employees pay raises of 3.3 percent to 3.5 percent and plan similar rates for next year. These numbers are down from the nearly 4 percent or higher increases that were prominent before the economy lost its footing in 2001. This is the lowest pay raise for the nation’s workers since the mid-1970s, according to the consulting group.
MU, a state-funded institution that employs nearly 11,500 employees, works on a slightly different system. The UM system operates a salary pool that can increase when resources are available. The pool is a general fund set aside for salaries, with distributions based on merit, among other things.
“This year, through some dynamic budgeting, we were able to increase the salary pool by 2 percent,” said UM spokesman Joe Moore. “Last year, the pool was not increased and people did not receive raises in most cases.”
However, not everyone will receive the 2 percent increase this year. Moore said that no matter the size of the salary pool, in most cases supervisors determine whether their employees will receive raises.
Another large employer in mid-Missouri is the insurance industry. Some company officials said pay raises are not tied to the current economic situation.
Tara Eubanks-Zahn, a public affairs specialist with State Farm Insurance in Columbia, said pay raises at State Farm are more individualized and do not fluctuate significantly with the economy.
“We reward our employees based on performance, and while pay raises may vary by individual based on job performance, our salary increases have remained consistent,” she said. “Our salaries are determined based on the current labor market.”
State Farm Insurance is not the only local business that gives out pay raises on an individual basis.
John Reynolds, floor supervisor at Westlake Ace Hardware Rental Center on West Worley, said he hasn’t heard one way or another about raises companywide. However, Reynolds said he received a decent raise this year.
“I haven’t heard any complaints,” he said. “Even though the economy is bad, business is up.”
Some may be wondering why pay raises are lacking. Peter Mueser, an associate professor at the MU department of economics who specializes in labor economics, explains that wages adapt slowly to the economy.
“There is a lag of some sort,” he said. “We’ve been through a recession and wages have not quite fully responded. We can tell because employment has not picked up.”
The theory of supply and demand is the key element behind employment. Mueser said that raises are smaller when the demand for workers is lower.
“The unemployment rate has not gone down in the way we would normally expect it to in a period of recovery,” Mueser said. “Workers are becoming more productive, and the growth observed is not occurring as a result of a greater level of employment.”
Missourian reporter Sarah Cross contributed to this report.