- Wages are set to rise 3.9% next year, the most since 2008, according to the Conference Board.
- The decade-high pay bump is fueled by the labor shortage and historically strong inflation.
- Salary increases are largest for workers younger than 25 and those who switched jobs in the last year.
The labor shortage is giving workers the kind of power they haven't had in more than a decade.
The average American worker is set to receive the largest one-year pay bump since 2008, according to The Conference Board's Salary Increase Budget Survey, which estimates the budgets for raises in 2022 at 3.9% next year. That's up 3% from when the Conference Board surveyed businesses in April.
The jump underscores just how much businesses have had to hike wages as they scramble to attract workers. Hourly wages alone have jumped 4.8% from November 2020 to November 2021, according to the Bureau of Labor Statistics' latest data release. In the traditionally low-paying leisure and hospitality sector, wages have soared even higher, going up 12.3% year-over-year.
Actual raises also climbed from the April survey period to November. The average business has lifted its salary budget by 3% in 2021 so far, according to the report. That's up from 2.6% in April and close to the levels seen just before the pandemic recession.
The increases in 2021 salaries were largest for workers under the age of 25 and those who switched jobs in the past year, Gad Levanon, an economist at the Conference Board, said. Nearly half of surveyed businesses — 46% — said higher wages for new hires were a factor in higher salary budget estimates.
It's linked to what employers say is a labor shortage, but five decades of declining wages argue for it being a post-pandemic pay shortage instead. Throughout the economy, employers say they're struggling to staff up and retain workers, turning towards everything from new benefits and perks to signing bonuses, but workers have held out, seemingly needing a lot higher pay to come off the sidelines.
It also comes as workers have quit at near-record highs for six months on end, with the number of openings continually outpacing the number of workers looking for jobs. Anecdotally, higher wages and salary increases have helped employers hire and keep workers, as workers rethink en masse what they want out of work and hold out for higher wages. Even so, experts say that labor shortages may not abate anytime soon.
High inflation drove salaries higher, too. Prices grew 6.2% year-over-year in October, according to the Consumer Price Index. That's the fastest rate since 1990 and extends a months-long trend of historically strong price growth. Thirty-nine percent of surveyed businesses told the Conference Board that rising inflation played a role in lifting estimates for next year's salary budgets.
The decade-high pay hikes might not be one-offs, according to the report. Unusual tightness in the labor market will likely persist through 2022, and wage growth will probably remain "well above" 4% during that time, Levanon said.
The pivot comes with risks, however. Higher wages would likely lead to stronger spending. A resulting jump in demand could lead businesses to raise prices at a faster pace. The trend could spark a dangerous cycle that keeps inflation at uncomfortably high levels, Levanon said.
"A wage-price spiral — where higher prices and rising wages feed each other, leading to faster increases in both — may already be in the works," he said.
So while the American worker might see their wages soar, prices might go up alongside it, bringing down how far that raise actually goes. Workers might have more power than they have in many years, but high inflation is still powerful, too.