The Federal Reserve Financial institution of New York’s November 2022 SCE Labor Market Survey reveals an increase within the common reservation wage—the bottom wage respondents can be keen to just accept for a brand new job—to $73,667, its highest stage for the reason that collection started in 2014. Respondents’ satisfaction with wage compensation, non-wage advantages, and promotion alternatives at their present job all improved in November in comparison with July. Relating to expectations, the typical anticipated wage provide (conditional on receiving one) additionally elevated and reached a brand new excessive.
The SCE Labor Market Survey, which has been fielded each 4 months since March 2014 as a part of the broader Survey of Client Expectations (SCE), gives data on shoppers’ experiences and expectations relating to the labor market. The aggregated statistics, along with a companion set of interactive charts exhibiting a subset of the information that we gather, are revealed each 4 months by the New York Fed’s Heart for Microeconomic Knowledge. As with different elements of the SCE, we report statistics not just for the general pattern, but in addition by numerous demographic classes, particularly age, gender, schooling, and family earnings. The underlying micro (individual-level) knowledge for the complete survey are made obtainable with an eighteen-month lag.
The rest of this submit gives extra particulars on the findings on reservation wages and focuses on the rise for the reason that onset of the pandemic. We discover that the predictors of higher-reservation wages have modified, with non-wage advantages taking part in a bigger function than earlier than the pandemic.
Our measure of reservation wage, or the bottom wage at which the respondent is keen to just accept a brand new job, comes from the next query within the SCE Labor Market Survey:
Suppose somebody supplied you a job in the present day in a line of labor that you’d contemplate. What is the bottom wage or wage you’d settle for (BEFORE taxes and different deductions) for this job?
This query is posed to all respondents (to those that are employed, unemployed, or out of the labor drive) and it gives an vital metric that summarizes present wage dynamics. For individuals who are out of labor, this metric gives data on the trade-off between the transfers tied to being out of labor along with advantages of leisure and anticipated salaries. For individuals who are at present employed, this metric offers data on the trade-off between staff’ present and anticipated salaries in addition to between present and anticipated non-wage facilities.
Once we take a look at the collection for employed and non-employed (unemployed or out of the labor drive) respondents individually, as within the chart under, we observe that the typical reservation wage has been growing for each teams since late 2017, however extra so for the reason that onset of the pandemic. As well as, the chart shows the rise for the reason that onset of the pandemic (since March 2020) to be extra pronounced for employed respondents. Particularly, whereas the typical reservation wage elevated by 19.4 % between March 2020 and November 2022 for employed respondents, it elevated by round 12 % for non-employed respondents in the identical time interval. Among the many employed respondents, we observe the best rise on this time interval for these with no school diploma (a 27 % improve).
The Upward Development in Reservation Wages Is Primarily Pushed by Employed Respondents
Revision in Reservation Wages
Now that we all know how reservation wages advanced for the reason that onset of the pandemic and that the rise is prominently pushed by employed respondents, the subsequent step is to discover the the reason why staff are revising up their reservation wages. To investigate this, we relate staff’ reservation wage changes to modifications of their earnings progress expectations, inflation expectations, U.S. unemployment price expectations, precise salaries, and satisfaction at their present jobs. We do that evaluation individually for the pre-pandemic (between March 2014 and November 2019, the final knowledge level within the SCE Labor Market module earlier than the pandemic) and post-pandemic (between March 2020 and November 2022) durations. The desk under presents the outcomes from these regressions.
Determinants of Reservation Wages Have Modified for Employed Staff For the reason that Onset of the Pandemic
|Wage progress expectations||0.17***||-0.07|
|1-year inflation expectations||0.01||-0.00|
|3-year inflation expectations||0.04||0.09|
|U.S. unemployment price expectations||-0.01||-0.03|
|Satisfaction with compensation||0.61*||0.37|
|Satisfaction with non-wage advantages||0.20||1.57***|
|Satisfaction with promotion alternatives||0.09||0.26|
Earlier than the pandemic, revisions in reservation wages had been positively and considerably associated to revisions in earnings progress expectations, revisions in precise salaries, and revisions in satisfaction with compensation at their current jobs. For instance, a 10-percentage level revision in earnings progress expectations was related to a $1,700 revision in reservation wages for staff, whereas a unit improve in satisfaction with compensation (in a 5-unit scale) was related to a $613 revision in reservation wages. Apparently, revisions of their expectations in regards to the combination economic system within the type of inflation expectations or the chance with which they suppose the U.S. unemployment price can be greater in a 12 months weren’t influential in how staff regulate their reservation wage.
For the reason that onset of the pandemic, nevertheless, we observe a change in how staff revise their reservation wages. On this interval, as proven within the final column of the desk, revision in reservation wages is positively and statistically considerably associated to solely modifications within the reported salaries and modifications in satisfaction with non-wage advantages at current jobs. A $1,000 improve within the reported wage of a mean employee is related to a $318 improve in her reservation wage, retaining all the pieces else fixed, whereas this pass-through was round $414 earlier than the pandemic. Extra importantly although, one unit improve in a employee’s satisfaction with the non-wage facilities of her current job is, on common, related to a $1,566 upward revision of her reservation wage.
These outcomes present the rising significance of non-wage advantages—corresponding to well being and dental insurance coverage, versatile work preparations, maternity and paternity leaves—in staff’ labor provide choices within the post-pandemic period. We at present observe the impact of this shift in staff’ preferences in reservation wages. Since staff’ preferences additionally decide the roles they finally choose, we’re more likely to see the impression of this transformation in preferences in labor market dynamics such because the forms of jobs they transition to within the close to future.
The November 2022 SCE Labor Market Survey outcomes present an increase within the common reservation wage to a collection excessive. The survey outcomes present that the continued upward pattern on this collection is primarily pushed by employed respondents. The outcomes additionally show that the rise in current salaries, however extra considerably the respondents’ improve in satisfaction with non-wage facilities of their present jobs are the primary drivers of the rise in reservations wages for the reason that onset of the pandemic, retaining all the pieces else fixed.
Felix Aidala is a analysis analyst within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
Gizem Kosar is a analysis economist in Client Conduct Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
Easy methods to cite this submit:
Felix Aidala and Gizem Kosar, “SCE Labor Market Survey Reveals Common Reservation Wage Continues Upward Development,” Federal Reserve Financial institution of New York Liberty Avenue Economics, December 19, 2022, https://libertystreeteconomics.newyorkfed.org/2022/12/sce-labor-market-survey-shows-average-reservation-wage-continues-upward-trend/.
The views expressed on this submit are these of the writer(s) and don’t essentially replicate the place of the Federal Reserve Financial institution of New York or the Federal Reserve System. Any errors or omissions are the duty of the writer(s).