Wage Gains of 3% Taking Hold as U.S. Employers ‘Need to Pay Up’

(Bloomberg) -- At CNH Industrial NV’s factory in Racine, Wisconsin, workers are building bright red Case IH tractors the company’s known for, and they’ll sell for hundreds of thousands of dollars. But there’s something even more valuable on the assembly line: the employees.

CNH Industrial, one of the world’s largest agricultural-equipment makers, needs to increase its Racine workforce of more than 500 by 5 percent, and it’s proving tough to do by the January goal. They’re competing with other big companies with a local presence, including Amazon.com Inc., S.C. Johnson & Son Inc. and Harley-Davidson Inc. Management has already raised wages 6 percent for production employees in Racine this year, and officials are in talks with the United Automobile Workers union for further increases for skilled tradespeople.

CNH Industrial’s situation shows why hourly earnings are likely to keep picking up after surpassing 3 percent for the first time in this expansion, according to figures out last week. A Labor Department report Tuesday showed U.S. job openings fell in September though remained near a record, exceeding the number of unemployed people by 1 million. While employers hope to retain and attract workers with better benefits such as extra vacation days, money may be talking louder now.

“We’ve seen a tight labor market for a while, but it seemed like employers were doing everything they possibly could besides raising wages,” said Sarah House, senior economist at Wells Fargo & Co. “It seems that hasn’t been enough. They’re starting to realize, ‘Hey, we just need to pay up a little bit more.’”

The 7.01 million job openings reported for September was 1.05 million more than the number of unemployed U.S. workers. Those numbers lag the Labor Department’s closely-watched jobs report by a month; Friday’s figures showed the unemployment rate held in October at 3.7 percent, the lowest since 1969.

CNH Industrial, based in the U.K., is in particular need of skilled candidates: Each tractor is highly customized, and the tools often require advanced training and experience. Aside from wages, they’re still buttering up employees with perks: The Racine plant’s human resources manager, Susan Prey-Fobes, says she and her colleagues recently grilled 600 burgers to feed workers for lunch.

Feeling Valued

Making employees feel valued is “as much a part of this frenzy on recruiting as anything else,” she said by phone.

Another local challenge comes from Foxconn Technology Group, the Taiwanese iPhone assembler that’s building its first major U.S. facility near Racine. The Wall Street Journal reported Tuesday that Foxconn is considering bringing in Chinese engineers to help staff the plant because it’s proving difficult to find workers in the U.S.

Corporations have flagged the worker shortage in surveys. A Federal Reserve Beige Book survey released last month cited anecdotes of firms being so strapped for workers that they’re considering robots and having difficulty filling shifts. Respondents to surveys by the Institute for Supply Management, a group comprised of executives who make purchasing decisions for their companies, have flagged finding skilled workers as a top issue.

At the same time, corporations face uncertainty over how to invest amid the trade war with China. And firms frequently are putting tax cuts toward things other than hourly wages, such as one-time bonuses and stock buybacks.

“It’s not like we’re thinking there’s a surge in wage growth coming and that this is a massive inflationary story -- we’re just saying that the direction of travel does seem up,” said Michael Gapen, chief U.S. economist at Barclays Plc. “Wages are firming, and that’s the right view. They’re just doing so modestly.”

--With assistance from Shobhana Chandra and Sarah Foster.

To contact the reporters on this story: Katia Dmitrieva in Washington at edmitrieva1@bloomberg.net;Lydia Mulvany in Chicago at lmulvany2@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, ;James Attwood at jattwood3@bloomberg.net, Randall Woods

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