U.S. Sees Highest Wage Jump in 20 Years
(WASHINGTON) — Wages jumped in the three months ending in September by the most on records dating back 20 years, a stark illustration of the growing ability of workers to demand higher pay from companies that are desperate to fill a near-record number of available jobs.
The Labor Department announced Friday that wages rose by 1.5% in the last quarter. That’s up sharply from 0.9% in the previous quarter. In the quarter ended July-September, the value of benefits increased by 0.9%. This is more than twice the previous three months.
For the first time since at least 20 years, workers have the advantage in the job marketplace. They are getting higher wages, better benefits and more flexibility. Government data indicates that there are more available jobs than unemployed, so businesses need to be harder at recruiting staff.
While wage growth is being eroded by higher inflation, overall wages have risen with the rising cost of living. Economists stated that the 3.5% rise in wages and salaries during the third quarter was more than the 1.2% inflation increase over the same period.
However, compared with a year ago, it’s a closer call. The record-breaking increase of 4.2% in wages and salaries was also recorded during the month ending September. However, the government announced Friday that prices rose by 4.4% in September compared to a year prior. The inflation rate was 3.6% for the previous year, exempting volatile food and energy items.
Jason Furman was a top economist for President Barack Obama and said that inflation-adjusted earnings still trail pre-pandemic levels. This is due to the huge price rises over the summer and spring for furniture and new cars.
How much workers receive from higher wages will depend on whether inflation declines over the next few months.
Economists predict that inflation will slow down, but wages will likely continue to rise.
The recovery from the pandemic recession has seen pay rise much quicker than the recovery after the Great Recession in 2008-2009. Wage growth slowed for a full year, but wages have been rising faster since then. That’s because of the different nature of the two recessions and the different policy responses.
There was more government stimulus after and during the recession than the last one. This includes the $2 trillion financial assistance package that former President Donald Trump signed in March 2020, and the $1.9 trillion of aid that President Joe Biden approved in March. These packages included stimulus checks as well as enhanced unemployment benefits, which fueled higher spending.
The biggest increases were seen for lower-paid workers, as restaurant, bar and hotel employees saw their wages rise by 8.1% in Q3 compared to a year ago. For retail workers it’s jumped 5.9%.
The healthy increase for disadvantaged workers “is the result of specific policy choices to give workers a better bargaining hand and to ensure the economy recovered faster,” said Mike Konczal, a director at the left-leaning Roosevelt Institute. “The fact that it’s happening is pretty unique.”
Konczal explained that stimulus checks as well as $300 per week more in unemployment benefits gave people out of work greater leverage over others to get higher salaries. In addition, the Fed’s low-interest rate policies helped spur more spending, raising the demand for workers.
8.4 million job opportunities were available in August, down from 11. million in July. It was the lowest number of jobs for 20 years.
Millions of Americans are taking action to lower wages and leaving their jobs to seek better-paying opportunities. A record 3% of American workers left their job in August. Companies must also raise wages to retain their workers because of the higher rate of quitting.
The highest income increases in years are being experienced by workers who change jobs. According to Atlanta’s Federal Reserve Bank, September saw a 5.4% increase in the pay of job-switchers compared to a year prior. That’s up from just 3.4% in May and the biggest increase in nearly 20 years. Pay rose by 3.5% for those who kept their job.
Esther Cano (26 years old) is among those who were able to find a better job in the July-September quarter. A recent college graduate who isn’t yet sure of her long-term career path, she left a job as a dispatcher at an HVAC firm in Fort Lauderdale, Florida, for a position at the job placement agency Robert Half. Her July start was rewarded with a 10% raise.
“What I was requesting was lower than what they were willing to pay,” Cano said. “It was a no-brainer on that end, plus the environment, the room for growth, the opportunity.”
Cano is already promoted to the position of team leader. She helps with temporary accounting and finance employees.
Economists predict solid wage growth in the next few months. The Indeed job listing website data shows that there are still many jobs available for employers.
Inflation can be fueled by higher pay, which means companies will raise their prices in order to compensate for the increased cost. But that’s not the only way businesses can respond. Oxford Economics economist Lydia Boussour notes that the quarter ended June was the best in almost a decade for corporate profits. This means that companies are able to pay more for employees without raising prices.