Many workers received pay raises in recent months. While this is seemingly good news, most of these pay bumps don’t offset growing inflation.
In fact, unless your wages grew more than the national average of 4.5%, a raise likely isn’t making a huge difference in everyday expenses.
Not only is this bad for the employee, but companies attempting to use pay raises as an attempt to attract and retain workers amidst the Great Resignation could be in trouble too.
Currently, inflation is at a 40-year high, and prices are on average 7.5% higher than they were just one year ago. As a result, the way people purchase goods and services is changing and prices will continue to outpace wage growth.
For instance, if someone working full-time made $20 per hour in 2020, they would have earned $41,600 with no taxes taken into account. This would be enough to purchase an entire vehicle, which costs an average of $41,000.
If that same person received a 5% raise to $21 an hour last year, they would have earned $43,680. However, inflation has caused the cost of a car to grow to an average of $47,000, meaning they no longer can afford it.
In short, affordability is going down despite wages going up.
According to a Brookings Institution analysis, even those who saw the biggest pay hikes like front-line workers are no longer able to reap the benefits of these increases due to inflation.
Not only that, but the work experience for many of these employees has decreased since the onset of the pandemic. Many workers had to risk their health and the health of their loved ones in order to get a paycheck.
“No one thought when you’re signing up to be a cashier that that job would be deadly,” said Molly Kinder, a Brookings fellow and author of the report.
While temporary, inflation can have lasting effects that are expected to last throughout the year.
Once inflation dissipates, the labor shortage will persist and give employees the ability to continue leveraging their power to receive better pay and benefits.
“Employees are looking for more than just pay,” said Shelly Holt, chief people officer at Payscale. “Pay is a critical factor, but they want workforce flexibility, they want to live better lives, and that is also increasing what [employers] are thinking about for benefits and total rewards.”