Workers who keep their jobs are getting the biggest pay rises in decades, a factor putting pressure on inflation.
According to the Federal Reserve Bank of Atlanta, wages for workers who remained in their jobs rose 5.5% in November from a year earlier, on average over 12 months. That was up from 3.7% annual growth in January 2022 and the highest increase in 25-year records.
Faster wage growth is contributing to historically high inflation as some companies pass on price increases to offset their increased labor costs. Prices rose in 2022 at their fastest rate in 40 years. Inflation has cooled in recent months but remains high. Federal Reserve officials are keeping a close eye on wage increases as they consider future rate hikes to slow the economy and lower inflation.
Employees who changed companies, job roles or occupations saw even larger wage increases of 7.7% year-on-year in November. The prospect of employees leaving for higher paychecks is one of the main reasons companies increase wages for existing employees.
However, many employees do not feel the wage increases. Wages for all private sector workers fell 1.9% in the 12 months to November after factoring in annual inflation of 7.1%, according to the Labor Department.
Workers in sectors like leisure and hospitality can easily find jobs that may pay better, making it more tempting to switch jobs, said Layla O’Kane, senior economist at Lightcast.
“When I see Burger King down the street offering $22 an hour and I’m making $20 an hour at the Dunkin’ Donuts where I work, I know very well what my opportunity cost is,” she said. “Employers are responding and saying, ‘Well, we’re going to raise wages internally because we don’t want to lose our already trained employees.'”
Workers’ bargaining power has increased as the economy recovers from the pandemic, likely emboldening some workers to demand wage increases from their current employers, Ms O’Kane added.
Alexandria Carter, a billing specialist and accountant at a Baltimore insurance company, received a promotion and a small raise in early 2022. After her year-end performance review, she was given a further 7% raise to reward her progress, and her bosses told her about their plans for further advancement within the company.
That was in contrast to some previous jobs she’s held where praise and raises have been less accommodating.
“They told me I excelled in my position and I just got it,” she said. “To have that recognition and that they notice my work and are rewarded is just nice.”
Alexandria Carter, a billing specialist and accountant from Baltimore, received a promotion and two raises last year.
Photo: Alexandria Carter
There are signs that wage growth is beginning to ease as the tight labor market eases somewhat. Average hourly wages rose 5.1% in November from a year earlier, slowing from a recent peak of 5.6% in March. Many analysts believe wage growth could slow further in the coming months.
In industries with high labor demand, “companies are prepared for wage increases to accommodate inflation,” said Paul McDonald, senior executive director at Robert Half, a professional staffing firm. “If inflation falls, it will be more in line with wage growth.”
The consumer price index, a measure of what consumers are paying for goods and services, rose 7.1% year on year in November, compared with 7.7% in October. The pace built on a trend of moderate price gains since the June peak of 9.1%.
Still, wage pressures are likely to persist in a competitive job market where poaching remains common. According to a Robert Half survey released in September, more than half of workers feel underpaid and four in 10 workers would quit their job for a 10% raise elsewhere.
Famous Toastery, a Charlotte, NC-based breakfast, brunch and lunch chain, is increasing salaries faster than ever, said Mike Sebazco, company president. At the company’s eight locations, the wages for the kitchen staff have risen by around 15% compared to the previous year.
“We didn’t want to be so easily poached,” he said. It’s not uncommon for executives from other companies to come to the Famous Toastery’s dumpsters to say to the breakfast chain’s workers, “Hey, work for me, and I’ll give you an extra $2 an hour,” Mr. Sebazco said.
Help cover In August, due to higher labor costs, Famous Toastery increased menu prices for items like the western omelet, which is made with ham, roasted peppers, caramelized onions and American cheese.
“Bacon and eggs and a lot of products are going to go up and down and you can get through that,” Mr Sebazco said. “We have never experienced such increases in work.”
Many companies in the Boston Fed district cited labor costs as a bigger source of inflationary pressures for 2023 than other types of spending, according to the central bank’s collection of business anecdotes known as the Beige Book.
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Most business leaders remain confident they can pass wage increases to consumers in the form of higher prices, said Lauren Mason, a senior principal at consulting firm Mercer LLC. “This makes offset investments a little easier to absorb,” she said.
Wage and price increases can be mutually beneficial. In fact, higher inflation is driving some workers to seek cost-of-living increases, helping wages continue to rise among those who remain, economists say.
In general, wages are rising for both job stayers and job changers because companies cannot find enough workers. Across the economy, job openings — at 10.3 million in October — far outpaced the 6.1 million unemployed Americans looking for work that month.
Companies use wage increases to retain employees and minimize the potential loss of productivity from recruiting and training new employees. According to a Mercer survey of more than 1,000 companies, companies are planning more wage increases in 2023 than in 15 years.
Daniel Powers, a recent college graduate, received a 10% year-end raise at a Chicago consulting firm after starting on a six-figure salary when he was hired in September.
“You understand the realities of the market – there is no false illusion of ‘we’re a family here,'” said Mr. Powers of his company’s management.
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