Hey millennials, look out below! Gen Zers may already be catching up in the salary race

Paul Davidson | USA TODAY

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Hey, millennials! That fresh-faced high school or college graduate doing your job in the next cubicle may be earning almost as much as you. Possibly more.

Workers ages 20 to 24, who are overwhelmingly new entrants to the labor market, are getting pay increases averaging 6%, double the annual wage gains of all U.S. workers, according to a study by the Conference Board provided exclusively to USA TODAY. The figures are based on a four-quarter moving average of Labor Department data through the second quarter of 2019.

Recent grads are benefiting from the tightest labor market in decades, with the 3.6% unemployment rate hovering just above a 50-year low and making it tough for employers to find qualified workers.

“When you hire new people, you have to obey market conditions,” says Gad Levanon, vice president of labor markets for the Conference Board. “If you don’t… you won’t be able to hire them.”

By contrast, he adds, “People who are staying at their current companies are just getting regular annual increases.”

In other words, by doling out modest raises, businesses are relying on existing workers’ ignorance of market conditions or reluctance to endure the hassles of a job search, Levanon says. Like recent graduates, older workers who ask for bigger raises or switch to higher-paying jobs are also making the most of the scramble for workers, Levanon says. Job switchers, however, make up a relatively small share of all workers, whose average wages have been rising about 3% a year.

JOB HOPPING

There are other reasons younger workers often see faster pay increases than older ones. They do more job hopping and are starting from a lower base, says Andrew Chamberlain, chief economist of Glassdoor.

The Conference Board data, however, underscore a narrowing pay gap between workers ages 20 to 24, largely members of Gen Z, who are typically landing their first jobs, and more experienced 25- to 34-year-olds, who fall in the millennial generation. Since 2014, the younger group’s wage gains have increasingly outpaced their older counterparts, figures show, a trend that can be traced to the tightening job market.

As a result, the recent grads now earn 71.7% of their elders’ pay on average, up from 65.3% in 2012 and the highest share in nearly four decades. In some cases, Levanon says, recent grads may earn as much or more than experienced millennials.

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That narrowing gap, known as pay compression, “is a huge problem” for employers, Levanon says.

“Studies show pay compression leads to low morale and high turnover” as many older workers bolt for other jobs, he says.

PAY COMPARISON SITES

That’s partly because online job sites such as Glassdoor and others allow workers to check out the average pay of other employees doing their job and even break down the figures based on years of experience.

Seventy-three percent of workers say they've checked their salary against market rates within the last year; and more than half have compared their salaries with coworkers, according to a survey by staffing firm Robert Half over the summer.

In July, 3.7 million workers quit jobs, typically to take other ones, the highest on Labor records dating to 2000. The total has since dipped but remains near a 19-year high.

"New employees at a company are often being paid more than tenured employees," says Brian Kropp, chief of research for Gartner's HR practice.

The Conference Board study also shows that company budgets for annual salary increases have risen only slightly, from about 2.8% in 2011 to 3.2% this year. By contrast, average U.S. wage growth has climbed from 2% to 3% during that period.

Unlike wage growth, the budgets don’t account for new hires, promotions or state minimum wage increases and underscore that companies haven’t substantially boosted pay for existing staffers despite the worker shortages, Levanon says.

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