Americans are in line for their biggest wage increase in more than a decade, according to a report released Wednesday, as companies struggle against a tight labor market and high inflation.
Businesses are expected to bump up pay by an average of 3.9% in 2022, according to the Conference Board report. That’s the fastest wage growth since 2008.
Higher pay for new hires was the most commonly cited reason for the uptick, according to the nonprofit business group, suggesting labor shortages and high turnover across industries could be giving employees more leverage. Inflation, which is higher than it has been in about 30 years, was the second most commonly cited factor.
The raises appear broad-based: “The big jump was for executives, for regular employees, and for hourly employees,” said Gad Levanon, vice president for Labor Markets at the Conference Board.
The salary increases come at a time when new unemployment claims, a proxy for layoffs, are near historic lows, and millions of people are leaving jobs in search of greener pastures. An estimated 4.2 million Americans quit in October, the Bureau of Labor Statistics reported Wednesday.
“No one is letting people go … they’re desperately trying to hang onto people and they’re looking to grow,” said Angelo Kostopoulos, chief executive of Akron Inc., a company that conducts an annual compensation survey of Washington, D.C.-area companies.
Those in nonunion jobs have seen their wages climb at a much faster rate, according to Bureau of Labor Statistics data. Such workers can be subject to drawn-out negotiations between their unions and employers, which means raises can take longer to finalize. Compensation analysts say that could be part of a broader nexus of events driving workers in a range of industries to go on strike.
“When they see that nonunion workers are making more than union workers and can’t keep up with the cost of living, they are really putting pressure on employers to increase wages,” said Levanon, of the Conference Board.
Kostopoulos said higher inflation is also making it harder for managers to justify lackluster raises.
In past years, an employer could hand out raises of 2% or 3% and keep pace with inflation. That’s no longer the case: Hiring managers now find they have to offer more to attract the job candidates they need, particularly for sought-after technical skills.
“Companies now see inflation as something they’re going to have to deal with for the next several years,” Kostopoulos said. “If you combine that with the Great Resignation, plus a heavy focus on technology and related skills, I think that’s where a lot of your overall budget planning increases are coming from.”
The Conference Board’s survey asks human resources executives about their compensation plans for the coming year. While such plans can change, the surveys nonetheless hint at where wages might be going.
The projections come as overall wage growth “dramatically accelerated” during the past six to eight months, the report says. Wage increases are most substantial among those younger than 25 and those who recently changed jobs.
Wage data maintained by the Atlanta Federal Reserve shows the average wage increase for job switchers was 5.1% in October, measured as a three-month moving average of median wage growth. That compares with 3.7% for those who stayed put. The data also shows that women outperformed men in terms of wage growth.
Glassdoor economist Daniel Zhao says it’s a “very common phenomenon” for job-switchers to have the upper hand in a tight labor market.
“When the job market is hot, workers who switch jobs see the fastest pay growth because they’re the ones who are setting the market wage,” Zhao said. “Often, workers who stay in their current jobs see slower pay growth because employers don’t feel as much pressure to raise wages for them. There’s a certain amount of inertia when employers think about pay for their existing employees.”
The job-hoppers also are pushing up pay for those who stay put, the Conference Board says, as some managers scramble to prevent their best people from leaving.
“Employers faced with extensive departures of experienced workers will raise wages faster for current employees in order to maintain an effective workforce,” the report states.
The organization predicted that labor shortages are likely to continue throughout 2022, likely pushing wage growth well above 4%.
With inflation at its highest levels since 1982, Levanon says he could see employers returning to cost-of-living adjustments, in which wages are tied closely to inflation. Such measures were common in the 1970s and 1980s, but fell out of favor as prices increases moderated.
Others see rising inflation as darkening an otherwise positive bit of economic news. The consumer price index jumped 7.8% from February to October, the Conference Board noted.
“What would normally be really good news, I think is pretty substantially tempered by the context of consumer price increases,” said Michael Strain, an economist at the American Enterprise Institute. “Some groups of workers, relative to a year ago, have lower inflation-adjusted wages. And for all workers it’s a lot less of an increase in purchasing power than it otherwise would.”