- Inflation-adjusted wages fell 3.7% in the last year through March as higher prices eroded strong pay gains.
- US workers have enjoyed historic wage growth as businesses struggle to attract job applicants.
- Yet higher prices throughout the economy are leaving Americans with much weaker buying power.
Even with extraordinary wage growth, intense demand for workers, and widespread quitting, inflation is crushing Americans' wallets.
Real compensation, which is adjusted for inflation, fell 3.7% for all workers through the year that ended in March, the Bureau of Labor Statistics said in the Friday report. That's worse than the 2.9% drop seen through 2021 and the biggest one-year decline in two decades.
The drop casts a grim shadow over data that, at first glance, showed historic strength in the labor market. Nominal wages rose 4.5% in the year through March, reflecting the largest 12-month jump since at least 2001. If you can ignore inflation, workers are winning extraordinary raises amid a historically tight labor market.
Yet rarely has inflation been so hard to ignore. Prices for common goods and services rose 8.5% over the same period, leaving Americans to contend with the fastest inflation since 1981. Americans are earning more on paper, but surging prices are leaving them with significantly less buying power.
The sky-high inflation is also overpowering some of the extraordinary trends boosting worker power. The labor shortage continues to hamper companies' hiring efforts, with the US still boasting near-record job openings at the end of February. The ratio of unemployed-Americans-to-job-openings sits at a record-low 0.6, meaning there are nearly twice as many job openings in the US as there are workers to fill them.
That imbalance is the foundation for the stellar nominal wage gains seen throughout the pandemic. Businesses have had to raise wages faster than usual just to attract workers amid the nationwide shortage.
Firms are also struggling with keeping their own workers around. Nationwide quits have surpassed 4 million for the last nine months as employees either exit the workforce or change jobs. The trend, which has been deemed the Great Resignation, has boosted wage pressures further, with many companies reporting the need to raise pay just to maintain their current payroll.
The two phenomena — the labor shortage and the Great Resignation — are giving employees the most negotiating power they've had in decades. But until inflation falls back to earth, their wallets are only going to feel lighter.