With businesses doling out their largest raises in years and upping their offers to new employees, worker wages are growing at a steady pace.
The bad news? Soaring inflation has largely eaten away those gains.
The average hourly wage has grown from $30.52 from June 2021 to $32.08 in June 2022, according to data from the Federal Reserve. That translates into a gain of about 5.1%. But inflation clocked in at about 9.1% over the last 12 months, according to recent data, wiping out those gains for many workers.
For employers, that means what may have been a generous raise just a few years ago isn't translating to a comparable increase in quality of life — a disconnect that is leading many employees to pursue new jobs despite their raises.
A survey of more than 3,000 U.S. adults by SophisticatedInvestor.com found 54.7% of workers have not had their hourly wage or salary match the growth in the consumer price index.
Workers ages 45 to 54 were most likely to see their salaries outpaced by inflation, at 65.6%. The least likely were workers ages 18 to 24 (43.8%).
"These survey results indicate that the majority of the U.S. workforce is having their effective income reduced by inflation year-over-year. At a time when housing inaffordability and the cost of living is accelerating at a rapid pace, these data are particularly concerning,” said analyst Liam Hunt. “This is especially true for women, who this survey found to be affected by inflation moreso than men. Gender-based discrimination and systemic barriers to raises and promotions may play a role in keeping women from advancing their salaries at the same rate as men."
Workers are concerned about the trend, according to the latest American Staffing Association Workforce Monitor online survey, which found 58% of U.S. adults have expressed concerns that their paycheck is no longer enough to support themselves or their families.
That means more potential turnover, with 28% of adults planning to search for a new job within the next six months. Another 27% plan to find a second job within the next six months, according to the survey. About 20% plan to ask for a raise from their current employer.
“Workers are concerned about the effects of inflation, and they’re planning on taking action,” said Richard Wahlquist, ASA president and chief executive officer. “Employers need to provide competitive compensation and work flexibility, and invest in employees’ professional development if they want to keep and recruit quality talent in this labor market.”
Younger workers are more likely to look for new jobs, with 40% of millennials and 36% of Gen Z adults saying they are going to look for new jobs, compared to just 13% of baby boomers.
The insecurity over pay is translating into spending patterns too, according to new findings from the second quarter Yelp Economic Average report, which found customers are seeking out lower-priced businesses.
Consumers are also using inflationary language in their reviews on Yelp 28% more than during the same time in 2021 and more than in the second quarter of 2020.
The concern over inflation comes as companies are preparing to boost salaries even higher in 2023 to compete in a tight labor market, and they are planning their largest raises in 15 years.
Salary budgets for U.S. employees are projected to grow an average of 4.1% in 2023 — the largest increases since 2008 — according to a new survey by Willis Towers Watson PLC of 1,430 U.S. organizations. Average raises were budgeted at 4% heading into 2022, although many companies implemented unbudgeted midyear increases in 2022 due to the intense competition for talent and the turnover tsunami.
The above-average raises planned for 2023 build upon a salary environment experts say is likely unsustainable — especially when inflation outside of labor costs is taken into account.
Nevertheless, about 64% of employers have budgeted for higher employee pay raises in 2023 than they did in 2022, and 41% have already increased their salary budgets since their original projections were made.
Pay inflation has proven to be a particular challenge for smaller businesses, which are struggling to keep pace with their larger counterparts. As we've noted, the tight labor market is expected to continue even against the backdrop of recession concerns.
Despite the many issues bedeviling the economy, including high gas prices, supply chain shortages and record inflation, which stood at 9.1% over the same time last year in June, there were still 11.3 million job openings at the end of May. There was a total of 5.9 million Americans reported unemployed, and layoffs had remain unchanged over the previous month, according to the Bureau of Labor Statistics. The "quit rate" the percentage of workers voluntarily leaving their jobs, dipped only slightly to 2.8%, just below recent highs.