- Inflation-adjusted wages fell 3.7% in the past year to March as rising prices eroded strong wage increases.
- American workers have seen historic wage growth as companies struggle to attract candidates.
- Yet higher prices across the economy leave Americans with much weaker purchasing power.
Even with extraordinary wage growth, intense demand for workers, and widespread quitting, inflation is crushing Americans’ wallets.
Real earnings, which are adjusted for inflation, fell 3.7% for all workers in the year ending March, the Bureau of Labor Statistics said in the report. friday. That’s worse than the 2.9% drop seen through 2021 and the biggest one-year drop in two decades.
The decline casts an ominous shadow over data that, on the face of it, showed historic strength in the labor market. Nominal wages rose 4.5% in the year to March, reflecting the biggest 12-month jump since at least 2001. If you can ignore inflation, workers are getting extraordinary increases in a historically tight labor market.
Yet inflation has rarely been so hard to ignore. Prices for common goods and services rose 8.5% over the same period, leaving Americans facing the fastest inflation since 1981. Americans are earning more on paper, but soaring prices are leaves a significantly lower purchasing power.
Skyrocketing inflation also dominates some of the extraordinary trends that drive worker power. Labor shortages continue to hamper corporate hiring efforts, with the United States still posting near-record job openings at the end of February. The U.S. jobless to job openings ratio sits at an all-time high of 0.6, meaning there are nearly twice as many job openings in the United States as there are. workers to fill them.
This imbalance is the basis of the dramatic nominal wage gains seen throughout the pandemic. Companies have had to raise wages faster than usual just to attract workers amid the national shortage.
Companies are also struggling to retain their own workers. Quits nationwide topped 4 million in the past nine months as employees left the workforce or changed jobs. The trend, which has been dubbed a big quit, has further heightened wage pressures, with many companies signaling the need to raise wages simply to maintain their current payroll.
Both phenomena – the labor shortage and the Great Resignation – give employees the greatest bargaining power they have had in decades. But until inflation comes down to earth, their wallets will only feel lighter.