Preliminary results from the WorldatWork 2011-2012 Salary Budget Survey were released recently, and show barely any changes for 2012, from the 2011 data. 

Even though we are technically two full years into an economic recovery, it's been one of the weakest recoveries on record, and so the impetus for a significant uptick in pay increase budgets is simply not there. At the same time as the economy is plugging along slowly, heath care costs continue to rise rapidly (up an estimated 8% in 2011 and 2012), putting the squeeze on employer compensation budgets.

Despite the generally weak economy and labor market, there are some pockets of significant strength, and thus the data below is not easily generalizable from industry to industry (more specific industry data will be available when the full results are released).  For instance, there is a strength in the technology labor market, the market for engineers, certain health care professionals, technically-oriented consultants, biotechnology-oriented scientists, and a few other pockets.  We would expect that data for many companies in these industries to exceed the overall data below.

On the other end of the spectrum, we would expect below-market level budgets for most of the weakest sectors in the economy, including local, federal and state governments, many non-profits, construction, and the many areas of the economy that serve these major sectors of the economy.

Over the next few months a lot of fresh data will be coming in from the many organizations that conduct various salary budget and compensation practice surveys, and we will update our readers periodically as this information roles in.

Applied HR Strategies will be hosting its annual rewards trends and salary planning workshop on September 28th in Seattle.  For more information, click here.

The future isn't looking too good for the typical wage earner in America these days. Not surprisingly, wage growth is quite slow right now, but there is also no foreseeable impetus to increase that growth any time soon, unless you're lucky enough to be in a few selected high demand roles (such as for skilled health-care workers and selected technical professionals).

Not only is the labor market in the worst shape in decades, we likely haven't hit bottom yet.  In addition, nearly all economists are predicting a painfully slow jobs recovery over the next few years.  Of the millions of jobs lost in this recession, the concern among many labor market pundits is that a good chunk of these jobs may never come back (i.e., many of the manufacturing job losses), and of the ones that do, the recovery will be several years in the making.

Back to wage growth though, here's the current situation relative to the pre-recession period: in the first half of 2007, wages were growing at a healthy 3.7% annualized rate. In the first half of 2009, wages increased at a 1.3% annualized rate, and that may well go down as the labor market continues to deteriorate (labor market conditions generally lag overall economic trends, so even though we've hit bottom overall, according to most economists, the labor market probably hasn't yet).

The current (August) national unemployment is at 9.7%, and is expected to bottom in the 10%+ range sometime early next year.  That's the good news. IHS Global Insight is predicting that in 2014, the unemployment rate will average 7.6%, which is still well above the unemployment rate before the recession started in late 2007.  The predicted molasses-paced recovery will have a major impact on wage growth in the U.S. for the next few years at the least.

Labor market dynamics are a complex brew of many factors, but at its core is the same "supply and demand" that you learned in Econ 101. With labor current market supply quite high and demand very low (and expected to stay weak for the next few years, due to the slow economic growth being projected), the the case for a strong rebound in wages is not in the cards, barring a much more robust recovery than expected.

It is likely that wage growth could be stuck in the 1.5% to 2.5% range for years, or roughly one-half to two-thirds of historical wage growth.

If this predicted scenario plays out, the implications for the typical American wage earner will be profound. It will also have a large impact on employers, who rely on economic growth to fund their pay-for-performance programs.  For some ideas on how to address these issues, see fellow Compensation Cafe' blogger Margaret O'Hanlon's recent post on dealing with "tiny" merit budgets, and my earlier post on using your  professional creativity in these lean times.

Doug Sayed, SPHR, CCP is founder of Applied HR Strategies Inc., a Seattle area strategic compensation consultancy, and lead author of the StrategicPay Series "Base Pay Toolkit."

Watson Wyatt just released its salary budget survey summary for 2009 - 2010.  Not surprisingly, the data is low compared to recent years, but not as low as had been projected earlier this year, when we weren't sure if the world was going to implode under the weight of the financial crisis.

Here's a quick summary of the key data:

The entire summary report can be found here.

One good piece of news is that employers seem confident enough that the vast majority say they they will be offering salary increases next year. Only about 10% of participants say they will not be granting increases next year, versus roughly a quarter that didn't grant any increases in 2009.

Projected salary structure increases for 2010 are in the ranges of 2.0% to 2.8% (depending on whether or not you count companies planning no increases), vs. approximately 1.8% to  2.8% in 2009 (same). Both year's adjustments are quite low by historical standards, but to be expected, considering the economy and the battered labor markets.  Only about 2/3rds of employers plan to adjust structures in 2010, vs. slightly over one-half in 2009.

Are wages falling in this recession? 

The answer to that question depends on who's wages we're talking about. Different angles of this question will yield different answers.

With nearly 15 million Americans unemployed (and that doesn't count "disaffected" job seekers who've dropped out of the labor force or taken part-time work in the interim), competition for jobs hasn't been this high in decades.

And just like many of us learned in Economics 101, when demand falls and supply increases,  prices fall (in this case, prices = wage rates). Generally this is most pronounced at the hiring level, as most companies are generally reluctant to cut wages for their workforces overall.

Despite the downward pressure, if you consult salary surveys coming out the first half of 2009, most will probably show a modest (albeit small) increase in overall wage rates from last year. Why?  The reason is that salary surveys are generally measures of pay for employed workers, not a measurement of how hiring rates are changing, although that data eventually works its way into databases that survey vendors report data from.

Chances are that for most jobs, hiring rates are indeed falling, while overall wages rates are fairly stable (wages rates are stable to slightly increasing for those that have remained employed). For instance, an article on the SHRM (Society for HR Management) website  reports that hiring rates have dropped 7.0% in the service sector and 10.0% in manufacturing year over year (March '08 to March '09).  While these are large drops by any standard, that doesn't mean that wages are falling precipitously everywhere. We know that both of these areas are very weak right now, so these drops are not too shocking.

But what about stronger areas like health care or government (almost nothing can stop the growth of government!). We doubt wages have fallen for nurses and many other still in-demand health care workers, and for "hot skill" roles in technology, such as experts in web search technology or social networking (Twitter anyone?).

A good labor market analogy is that labor markets are much like the regional weather patterns, full of micro-climates within larger overall weather trends and systems.  We know, for instance, that certain areas within specific wine growing regions are slightly cooler/warmer or wetter/dryer than other nearby areas, sometimes just a hundred yards away, and it's the same with labor markets.  We know the macro trend is down in this labor market, but that doesn't mean it's a universal trend that applies to all jobs and all regional labor markets. Do your research before making sweeping generalizations based on the larger overall pay trends.

Doug Sayed, SPHR, CCP, is principal at Applied HR Strategies, Inc., a compensation consultancy based in the Seattle area.  Doug is a Certified Compensation Professional (CCP) with over 20 years of HR and compensation experience, and a Master's degree in HR management from the Ohio State University. He is the lead developer of the StrategicPay™ Series, a series of "do it yourself" compensation resource toolkits, the first edition of which has just been released for publication.