AIM Survey Shows Slowing Wage Growth in 2018
It seems that Massachusetts employers embody all the ambivalence and contradictions that have marked the most prolonged economic recovery since the Second World War.
On the one hand, the 205 employers who participated in the 2018 AIM HR Practices Survey predict lower salary increases, less hiring, and higher health-care costs for 2018 than this year.
On the other hand, employer confidence in the state economy stands at a 13-year high; the state economy grew at a brisk 5.9 percent pace in the third quarter and unemployment throughout the Commonwealth has dropped to 3.7 percent.
The year 2018 promises to be an interesting one.
Participants in the AIM survey project a 2.66 percent increase in salaries in 2018, down from a 2.75 percent increase in 2017. Non-manufacturing companies are fueling the overall decrease, with an expected increase of just 2.43 percent. Manufacturing companies held steady at 2.70 percent, slightly down from the 2.71percent increase within this sector in 2017.
Survey participants also project a decrease in recruitment activity in 2018. Last year, 44 percent of participants projected that recruitment activity would increase over the previous year. This year, only 33 percent of participants plan an increase in recruitment activity.
These lower projections for salary budgets and recruitment activity come at a time of increased confidence in the economy, as measured by AIM’s Business Confidence Index. In October 2017, the index reached 62.7, its highest level in 2017 and an increase of 6.5 points since the October 2016 recording of 56.2.
“The acceleration of the Massachusetts economy in the third quarter provided additional fuel to an already solid sense of confidence among employers as we head for 2018,” said Raymond G. Torto, chair of AIM’s Board of Economic Advisors and a lecturer at Harvard University’s Graduate School of Design.
Health-care costs continue to rise for Massachusetts employers. Survey participants report increases in the annual renewal rates for health plans. The average annual premium increase is 7.84 percent, with higher percentage increases reported for HMOs and consumer-driven health plans. Average premium increases in 2016 were 6.1 percent.
The Centers for Medicare and Medicaid Services indicate that Massachusetts, at 30 percent above the national average, is the second highest spending state for health care. Per-capita personal health-care spending in Massachusetts increased more than 12 percent in five years—from $9,417 in 2009 to $10,559 in 2014.
In response to the escalation of health-care costs, more employers (42 percent) are limiting the number of health-plan options available to employees to just one.
Also, more employers are offering high-deductible health plans. For the second year in a row, there has been a 33 percent increase in the number of companies that provide high-deductible health plans as the only health plan option for employees. Although only 16 percent of all survey participants offer a high-deductible health plan as the only plan option, these employers represent 38 percent of participants that offer just one plan.
Massachusetts employers will have an additional health-care cost come 2018. Companies will pay an additional $180 million over two years as part of an assessment designed to close a budget deficit with the state MassHealth program for low-income people. Companies with employees currently using MassHealth will shoulder the bulk of the new assessment.
Meanwhile, the Massachusetts legislature is currently developing legislation that Beacon Hill leaders say will address the overall cost of healthcare.
Survey participants also commented on their preparations for compliance with the Massachusetts Pay Equity Act. This law, which takes effect on July 1, 2018, creates a potential liability for employers who pay different rates to men and women who perform comparable work. Employers who complete a self-evaluation to identify and remove gender-based pay inequities can maintain an affirmative defense to employee claims under the act. However, successfully performing a self-evaluation requires an investment of time and resources to build a compliant compensation process.
Despite the impending July 1, 2018, deadline for completing a self-evaluation and implementing remedial actions to secure the affirmative defense, only 19 percent of survey respondents state that they have completed the self-evaluation. Even fewer participants (12 percent) state that they have taken remedial actions.
Completing self-evaluations may be further complicated by a lack of pay-equity-compliant job descriptions. Fifty-seven percent of participants state that their job descriptions are either out of date or nonexistent. An additional 8 percent state that while they have updated their job descriptions for pay equity compliance, they do not have job descriptions for all positions.
The act also affects employee recruitment through its prohibition on asking applicants to disclose their current salary or their salary history. While employers acknowledge that this fundamentally changes the recruitment process, 17 percent of participants state that they do not currently have a plan to comply with this requirement, and another 38 percent plan to wait until July to remove requests for salary information from their applications.
Survey participants see a strong 2018 for their companies, with 82 percent rating their business conditions as either excellent or good. Addressing pay equity, employee recruitment, limited salary budgets, and increased health-care costs will stretch the capacity of most HR departments as they try to stay ahead of the economic recovery. Employers are encouraged to integrate their compensation, benefits, and recruitment strategies into a pay-equity-compliant value proposition that establishes them as an employer of choice in 2018 and beyond.
Download the report.