A tight US labour market is helping drive substantial raises for millions of Americans, with workers' typical hourly earnings increasing by nearly 5 per cent in the last year. The problem is that inflation is not only erasing most or all of those gains but it is also pushing many workers into the red, CBS News reports.
Once inflation is accounted for, or "real wages", average hourly earnings decreased by 1.2 per cent from October 2020 to October 2021, according to the Bureau of Labor Statistics last week. Those wages represent income after accounting for the impact of rising prices and show a person's actual purchasing power.
Using that measure, the typical US worker is worse off today than a year ago even though nominal pay, or income without any adjustments, is rising as quickly as it has in years. Yet inflation is rising at an even steeper pace, with consumer prices increasing 6.2 per cent in October from a year earlier. That represents the steepest monthly rise in about 30 years.
For consumers, the challenge is that inflation is impacting a wide range of goods, from prices at the pump to food at the grocery store. Making it difficult for most workers to avoid paying higher prices. Unsurprisingly, Americans are pessimistic about the nation's economic outlook, with more than 6 in 10 calling the economy poor, according to polling from the Associated Press-NORC Center for Public Affairs Research.
"Inflation is working against workers right now," Liz Wilke - principal economist at Gusto, a payroll company for small and midsize businesses - told CBS MoneyWatch.
That may be prompting some workers to change jobs in what has come to be known as "The Great Resignation"; a spike in the number of employees who are handing in their notice. Some are leaving the workforce to care for children, while others are starting their own businesses. However others may be quitting jobs to take higher-paying roles to offset more expensive gas, food, rent and other costs, Ms Wilke said.
Sectors where pay is beating inflation
Some employees are faring better, however, such as low-income workers in the retail, leisure and hospitality sectors. For instance, employees in leisure and hospitality saw their nominal hourly wages increase 11.2 per cent over the last year, or well above the prevailing rate of inflation.
Workers in the financial industry got a more modest 4.2 per cent bump during the past year, which means their pay gains are failing to keep up with inflation.
Restaurant workers do generally earn far less than financial industry employees - at about $19 an hour compared with $41 an hour for the latter - but people working in the leisure and hospitality sector have actually gained purchasing power over the past year, compared with a loss for higher-paid workers.
That change is creating what economist Arindrajit Dube at the University of Massachusetts Amherst describes as a "Great Re-Compression," meaning that wages are rising rapidly for the nation's lowest-paid workers.
"The bottom 40 per cent saw incredible growth in hourly earnings, surpassing price growth" between the second and third quarters of this year, Mr Dube wrote on Twitter. "At the same time, those between the 50th and 80th percentile (call it the middle class) experienced wage growth below inflation levels."
The main reason for this is that restaurants, warehouses, transportation companies and others that employ lower-wage workers are increasingly competing for employees amid a broader national labour shortage triggered by the COVID-19 pandemic. This is a reversal from the prior decade when higher-paid professionals had wage gains far exceeding those of lower-paid workers.
"But the scale of this far surpasses anything from the past," Mr Dube added.
Source: CBS News
A tight US labour market is helping drive substantial raises for millions of Americans, with workers' typical hourly earnings increasing by nearly 5 per cent in the last year. The problem is that inflation is not only erasing most or all of those gains but it is also pushing many workers into the red, CBS News reports.
Once inflation is accounted for, or "real wages", average hourly earnings decreased by 1.2 per cent from October 2020 to October 2021, according to the Bureau of Labor Statistics last week. Those wages represent income after accounting for the impact of rising prices and show a person's actual purchasing power.
Using that measure, the typical US worker is worse off today than a year ago even though nominal pay, or income without any adjustments, is rising as quickly as it has in years. Yet inflation is rising at an even steeper pace, with consumer prices increasing 6.2 per cent in October from a year earlier. That represents the steepest monthly rise in about 30 years.
For consumers, the challenge is that inflation is impacting a wide range of goods, from prices at the pump to food at the grocery store. Making it difficult for most workers to avoid paying higher prices. Unsurprisingly, Americans are pessimistic about the nation's economic outlook, with more than 6 in 10 calling the economy poor, according to polling from the Associated Press-NORC Center for Public Affairs Research.
"Inflation is working against workers right now," Liz Wilke - principal economist at Gusto, a payroll company for small and midsize businesses - told CBS MoneyWatch.
That may be prompting some workers to change jobs in what has come to be known as "The Great Resignation"; a spike in the number of employees who are handing in their notice. Some are leaving the workforce to care for children, while others are starting their own businesses. However others may be quitting jobs to take higher-paying roles to offset more expensive gas, food, rent and other costs, Ms Wilke said.
Sectors where pay is beating inflation
Some employees are faring better, however, such as low-income workers in the retail, leisure and hospitality sectors. For instance, employees in leisure and hospitality saw their nominal hourly wages increase 11.2 per cent over the last year, or well above the prevailing rate of inflation.
Workers in the financial industry got a more modest 4.2 per cent bump during the past year, which means their pay gains are failing to keep up with inflation.
Restaurant workers do generally earn far less than financial industry employees - at about $19 an hour compared with $41 an hour for the latter - but people working in the leisure and hospitality sector have actually gained purchasing power over the past year, compared with a loss for higher-paid workers.
That change is creating what economist Arindrajit Dube at the University of Massachusetts Amherst describes as a "Great Re-Compression," meaning that wages are rising rapidly for the nation's lowest-paid workers.
"The bottom 40 per cent saw incredible growth in hourly earnings, surpassing price growth" between the second and third quarters of this year, Mr Dube wrote on Twitter. "At the same time, those between the 50th and 80th percentile (call it the middle class) experienced wage growth below inflation levels."
The main reason for this is that restaurants, warehouses, transportation companies and others that employ lower-wage workers are increasingly competing for employees amid a broader national labour shortage triggered by the COVID-19 pandemic. This is a reversal from the prior decade when higher-paid professionals had wage gains far exceeding those of lower-paid workers.
"But the scale of this far surpasses anything from the past," Mr Dube added.
Source: CBS News