U.S. Wage Hikes Can't Keep Up With Inflation: Washington Post

After years of barely budging, wage growth is finally at its highest level in decades. A global pandemic, combined with swift government stimulus and unexpected labor shortages, have put workers in the driver’s seat, giving them the kind of negotiating power they had never imagined.

Photo Insert: A warehouse worker manning a forklift

But the same strong economic recovery emboldening workers is also driving up inflation, leaving most Americans with less spending power than they had a year ago, Abha Bhattarai reported for the Washington Post.

Although average hourly wages rose 4.7 percent last year, overall wages fell 2.4 percent on average for all workers, when adjusted for inflation, according to the Labor Department. The only sector where pay increases outpaced inflation last year was in the leisure and hospitality industry, where workers generally make the lowest hourly wages of any sector.

Workers there saw a 14 percent average raise from about $17 an hour to more than $19.50, according to an analysis of Labor Department data. Inflation rose 7 percent last year to its highest level in four decades, as supply chain disruptions and labor shortages collided with growing demand from US consumers.

Gas prices are up 50 percent from a year ago, while the price of meat, fish, and eggs is up nearly 13 percent, according to the US consumer price index.

In interviews with more than a dozen workers, many said that despite considerable pay raises — as much as 33 percent, in some cases — they were still struggling to cover basic expenses. Several workers said they had taken second jobs to keep up with rising costs for groceries, gas, and rent. And many said their budgets will be even more strained once student loan payments resume in May.

But inflation and wage growth can become intertwined. Most economists consider this round of wage growth a natural result of the strong economic recovery, as well as competition for workers, but some worry the cycle of high inflation and demand for higher wages can become self-reinforcing, as they were during the late 1970s and early 1980s.

If consumers and businesses start expecting inflation to continue for a long time, each side will keep trying to outbid the other — businesses by charging higher prices and workers by asking for higher pay — fueling yet more inflation.

Federal Reserve Chair Jerome H. Powell said last week that he is not yet seeing evidence of such a “wage-price spiral” but that the Fed is watching these trends closely as it prepares to combat inflation with interest rate rises this year.

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