U.S. companies may be hiring but lid on wages, investment hits productivity

Thu Aug 6, 2015 4:00pm EDT
 
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By Jonathan Spicer

BRIDGEPORT, NJ (Reuters) - As the Federal Reserve puzzles over what is holding back U.S. wages and productivity six years into the economic recovery, a pasta sauce company in New Jersey may offer some answers.

Chelten House Products makes private-label sauces and dressings for high-end grocers such as Whole Foods, Trader Joe's and Kroger, and has doubled its workforce to 300 over the past five years to keep up with a booming organic food market.

Now it is struggling to hire not just skilled mechanics or electricians but even workers who handle the jars rolling down its conveyer belts. Chelten CEO Steve Dabrow says factory work is becoming a harder sell with unemployment down at a seven-year low of 5.3 percent. "You're not sitting down, you're standing on your feet all day, you're not taking breaks, and bottles are flying down the line," he said.

The Bridgeport, New Jersey, company, which hired 60 people just last year, is not bidding up wages much for anyone save those with very specialist skills because, for now at least, it still manages to fill the vacancies. It has made some strategic capital investments, such as in a more automated new plant in Las Vegas in 2013, but has more recently focused on expanding by taking on additional workers.

Like other U.S. manufacturers for whom the 2007-2009 recession is fast-fading, this company's story of brisk hiring, limited wage hikes, and some capital investment helps illustrate why the otherwise mostly rosy U.S. labor market is marred by low wage growth and sinking productivity.

Interviews with several heads of small and midsize companies, together with results from employer surveys and data on labor costs, indicate that while companies are prepared to hire more workers, they do not feel the need to raise wages significantly or have the confidence in the economy to make big capital investments. This is good for the job numbers but it is restraining productivity and economic growth.

Dabrow and managers at other U.S. manufacturing companies say they often need to bring on workers who lack the experience or dedication of those hired in 2009, when U.S. unemployment peaked at 10 percent. That means a lot of on-the-job training and staff turnover that may keep U.S. productivity, or output per worker hour, from rebounding quickly from its first back-to-back quarterly drop since 2006. (Graphics: link.reuters.com/cuj32w  link.reuters.com/xyb62w

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Workers box jars of pasta sauce at a plant run by Chelten House Products in Bridgeport, New Jersey July 27, 2015. REUTERS/Jonathan Spicer