Wage growth keeps slowing for job switchers as US labor market cools off

The pay gap between job switchers and job changers narrowed in May in the latest sign that the US labor market is cooling from a hot start to 2024.

New data from ADP released Wednesday showed that the median year-over-year pay increase for job switchers fell to 7.8% in May, from a recent spike of 8.3% in March and 8% in April. The gap between pay gains for job changers and those of job switchers, which grew at a 5% pace in May, is at its lowest level since February and a far cry from 2022-2023 levels.

“We’ve seen that people’s willingness to jump from job to job has really declined over the last two years,” ADP chief economist Nela Richardson said on a conference call with reporters Wednesday morning.

Richardson noted that the trend of fewer people leaving their jobs for a big pay bump isn’t new, as she and other economists have been tracking the shift from the “Great Resignation” to the “Great Stay.” But recently there have been other changes. Companies are focusing more on retaining and training workers rather than recruiting, and consequently, prospective workers are finding it harder to land new jobs.

“When I talk to employers, their narrative has changed a lot over the last year,” Richardson said. “Instead of being totally focused on hiring and replacing workers, they’re really focused on productivity, getting the most out of the workforce, and having a workforce that is engaged.”

Richardson added that workers are still finding jobs. It just seems “it’s taking a bit longer.”

This dynamic is playing out as new data from the Bureau of Labor Statistics released Tuesday showed job openings hit their lowest level in more than three years in April. Notably, the ratio between the number of job openings and unemployed people returned to 1.2 in May, which is in line with pre-pandemic levels.

Richardson reasoned that these are signs of the labor market stabilizing. The question is whether this balance lasts or if it is a sign of a more significant slowdown.

Data from ADP released Wednesday also showed 152,000 private payrolls were added in May, lower than the 188,000 seen in April and below economists estimates for 175,000 additions.

Investors will get another update on the state of the labor market on Friday morning with the release of the May jobs report. The May jobs report is expected to show 185,000 nonfarm payroll jobs were added to the US economy last month with unemployment holding steady at 3.9%, according to data from Bloomberg.

In April, the US economy added 175,000 jobs while the unemployment rate ticked up by 0.1% to 3.9%.

Bank of America US economist Michael Gapen projects a slightly stronger print, with his team estimating 200,000 jobs were added in May while the unemployment rate declined to 3.8%.

Gapen noted this would reflect a “healthy but better-balanced labor market.”