Wages Poised to Rise in U.S. as Paychecks for Temps Get Bigger

Staffing agencies are charging companies more for temporary workers, a possible harbinger of a bump up in salaries for permanent employees later this year.

The bill rate at Calabasas, California-based On Assignment Inc. (ASGN), which places temporary staff primarily in the information technology and health-care fields, climbed 6.3 percent in the quarter ended March 31 from the same time last year, the largest 12-month gain since 2008.

The increase in the amount the company charged was “surprising,” said Tobey Sommer, a staffing analyst at SunTrust Robinson Humphrey Inc. in Nashville, Tennessee.

Agencies like On Assignment are the first to reflect shifts in wages because demand for their services is more immediate, prompting “real time” changes in fees, Sommer said. By contrast, he said, employers calibrate compensation for permanent workers less frequently, causing those adjustments to lag behind.

The temp labor market is a “canary in the coal mine” for broader gains in wages, Sommer said. “Bill-rate increases are starting in areas where demand is the strongest, like the IT sector. The logical next step is for bill rates to improve more broadly and ultimately be reflected in the wage gains of permanent employees.”

On Assignment had “robust” revenue growth in its information technology and engineering business during the first quarter, driven in part by higher contract rates, Chief Executive Officer Peter Dameris said on an April 28 conference call. “Exiting the quarter, demand for our services strengthened in all divisions,” he said.

Fees Climb

Companies specializing in placing health-care workers are also starting to command higher fees. San Diego-based AMN Healthcare Services Inc. (AHS) increased its rates twice as many times in the first four months of the year than it did in the first six months of 2010, Susan Salka, president and chief executive officer, said in a May 5 conference call. Cross Country Healthcare Inc. (CCRN), based in Boca Raton, Florida, expects to increase rates in the second half of the year, CEO Joseph Boshart said in a call the same day.

Robert Half International Inc. (RHI), which specializes in finance and legal work, is also seeing a pickup. The Menlo Park, California-based company increased pricing by 2.4 percent in the first quarter from the prior year, Chief Financial Officer Keith Waddell said on an April 21 conference call.

“We’re seeing higher pay rates in every single division sequentially,” Waddell said. This is one of the precursors of “good things to come in staffing,” he said.

Skilled Temps

Wage growth for temps is likely limited to workers whose skills are in relatively short supply, said Kathryn Kobe, director of price, wage, and productivity analysis at Economic Consulting Services LLC in Washington. Nonetheless, the employment situation has started to improve enough to expect a pickup in overall wage gains by year end, she said.

Recent increases in the Wage Trend Indicator, an index created by Kobe and economist Joel Popkin for the Bureau of National Affairs, a private provider of economic data, indicate pay will climb.

The gauge points to about a 2 percent increase in the Employment Cost Index by the end of the year, which would be the biggest gain since the first quarter of 2009, according to BNA. Through the first quarter, the ECI, a broad measure of compensation, posted a 1.6 percent year-over-year gain, according to Labor Department data.

“We’re seeing enough forward momentum in the economy that we’re expecting to see modest wage and salary gains,” Kobe said.

ADP’s Clients

In another sign wage gains are broadening, funds held by Roseland, New Jersey-based Automatic Data Processing Inc. (ADP) for its clients are rising, according to Rod Bourgeois, an analyst at Sanford C. Bernstein & Co. in New York, who maintains an “outperform” rating on the provider of payroll services to about 550,000 companies.

Average client balances, or the money ADP receives to pay wages to customer employees, increased 12 percent in the quarter ending March 31, Chief Executive Officer Gary Butler said in a May 2 statement. Such funds climbed to a record in April, breaking the previous high reached in March 2008, Butler said on a conference call the same day.

This is “resounding evidence” that salary gains are improving, said Bourgeois. While some of that growth may be attributed to a larger client base or other non-wage reasons, these are not large enough to account for all the gain, he said.

Bourgeois estimated that gains in salaries accounted for about half of the 12 percent increase in ADP’s client funds.

Fed View

Federal Reserve policy makers at their April meeting were less optimistic on the outlook for wage increases as unemployment hovers around 9 percent.

“Wage increases continued to be restrained by the presence of a large margin of slack in the labor market,” central bankers said. “Signs of rising wage pressures were reportedly limited to a few skilled job categories for which workers are in short supply, while, in general, increases in wages have been subdued.”

Even moderate wage gains in some areas of the labor market are an encouraging sign that higher paychecks may be on the way for other temporary and permanent workers, according to Bourgeois.

“High unemployment is an ongoing economic problem, but ADP’s recent results show solid signs of wage gains across a quite diverse set of employers,” Bourgeois said. “Broader pay increases are feasible if economic expansion continues.”

To contact the reporters on this story: Anna-Louise Jackson in New York at ajackson36@bloomberg.net; Anthony Feld in New York at afeld2@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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