Employee Pay Spikes Nationwide

After three years in which salary levels barely budged, they’ve been surging for four consecutive quarters.
David McCannApril 18, 2013

The unemployment rate, though edging down, is still higher than most economists consider consistent with a fundamentally healthy economy. But by another measure of fiscal health – the level of compensation being paid to those who are working – these are boom times.

PayScale, which claims to have the world’s largest salary database, publishes a quarterly index that tracks changes in average total cash compensation based on information provided by the millions of people per month who complete a survey on the firm’s website. At any one time the database represents about 3 percent of U.S. employment, says Katie Bardaro, PayScale’s lead economist.

Average total cash compensation among employed people, which was generally stagnant from 2009 through 2011, rocketed up last year and is continuing its surge this year. The rate of increase has been greater in the past two quarters than at any time since the index was established at the beginning of 2007.

Quarterly increases from the corresponding year-earlier quarter leaped, starting with the first quarter of 2012, from 0.7 percent, to 2.0 percent, to 2.6 percent, and to 3.5 percent by the end of last year. For this year’s first quarter the increase was again 3.5 percent.

That doesn’t exactly mean that the people who filled out the survey a year ago have gotten a 3.5 percent raise. “The index does not follow salary increases for specific people,” Bardaro says. “Rather, it tracks the market prices for jobs.” The database is constantly being refreshed; PayScale gets about 4 million unique visitors to its website each month, and the salary index uses recently input data.

PayScale keeps the index consistent by applying a compensation model based on how the people whose data were used in setting the index’s base level at 100 in 2007 were distributed by years of experience, geography, industry, and company size. If the sample for a particular quarter deviates from those breakdowns, PayScale corrects it using the model, Bardaro says. The index is now close to 109.

PayScale believes the recent salary explosion was driven by overall better economic performance and pent-up pressure to increase compensation following the limp 2009-through-2011 period, says Tim Low, a vice president at the company. In fact, over a four-quarter period that began in the second quarter of 2009, the salary average actually retracted each quarter.

Salaries are rising faster in some industries than others. For example, in the first quarter of 2013, mining/oil-and-gas exploration soared 5.2 percent higher than it had been in the initial 2012 quarter, driven largely by a boom in fracking for natural gas. Next came financial services, at 4.7 percent. The lowest increase among 15 industry sectors tracked by PayScale was transportation/warehousing/storage, at 2.5 percent.

Aside from the national upward trend in salaries, another notable shift that has emerged in the past year is that pay is growing faster at small employers (up to 99 employees) than large ones (1,500-plus employees). In the most recent quarter, that gap was immense: 5.5 percent at small companies, 2.5 percent at large ones. Until the second quarter of 2012, in only one quarter had compensation increases been greater for smaller employers – and that was at the index’s beginning in first-quarter 2007.

PayScale attributes this change of circumstance to “a fundamental shift in the job economy and talent market, whereby small companies are increasingly competing in the same playing field for talent as large companies and must come to the table with comparable offers,” says Low.

Individual visitors to can determine whether a new offer is at a fair price, how they’re currently paid compared to others like them, and what kind of compensation they could expect when switching to a new profession. Companies can benchmark their pay for specific positions and people against industry competitors and other companies in their state and of their size.

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