With the unemployment rate set to fall nearer to pre-recession levels by year's end, 2014 could be the Year of the Raise — at least for some people.
For millions of workers, it's about time: Real median family income has fallen 6.4% to $52,163 since peaking in 2007. Even though middle-class incomes have lost ground to inflation for decades, workers have opportunities to catch up during the sweet part of economic cycles.
The issue is whether such a window will open this year. In the strongest position are workers with scarce skills in cities or industries where nearly full employment will arrive by year-end.
The numbers are moving in workers' direction. Unemployment, now 6.7%, could be under 6% by December, says Joel Naroff, president of Naroff Economic Advisors. Excluding workers unemployed more than six months, unemployment is only 4.2%, JPMorgan Chase economist Michael Feroli says.
Major cities from Boston to San Francisco could near full employment, about 5.5%, by fall, which may begin shifting salary leverage to workers, Naroff says.
"The pool of workers (that) employers have been using to keep wages down will turn into a puddle," Naroff said. "Minneapolis is already in a labor shortage, and most of Texas will be at 5% unemployment in a year.''
Some effects are visible. A Federal Reserve survey this month reported "moderate" wage pressures in Minneapolis, where unemployment is now 4%. In Dallas, where unemployment is 5.6%, reports of pay increases and wage pressures are up, the Fed said.
Unemployment rates in places hard-hit by the recession are well below the national average. Much of Florida — including Orlando, Miami, Tampa and Jacksonville — has unemployment of 6.3% or lower. San Francisco has seen joblessness drop to 6%, from 10.7% in 2010.
Nationally, 155 of 372 metro areas are at 6% or lower, most likely to approach 5% by the end of the year, Naroff said. That shifts leverage in the cities, and also in industries congregated there, such as San Francisco's tech business, he said.
Surveys by compensation consultants Aon Hewitt and Buck Consultants say corporations plan to keep 2014 raises around 3%, not adjusted for inflation, similar to 2013. Moody's Analytics and the Federal Reserve don't expect pay to accelerate this year.
"Most estimates of the unemployment rate below which real wage growth accelerates are around 5.5%," Moody's Analytics chief economist Mark Zandi said. "This suggests wage growth won't accelerate in earnest until 2016."
But it may come sooner for more-skilled workers willing to switch jobs, said Bob Funk, president of Express Employment Services in Oklahoma City.
"You have to take better care of people coming out of a recession,'' Funk said. "The skilled people are already looking.''