U.S. Wages Are Growing, But Continue To Lag Behind Inflation

A report shows that average hourly earnings grew by 0.5% last month, bringing the year-over-year gains to 5.8%, but wages can’t seem to keep up with record high inflation.

According to a new forecast from Bloomberg economists, wages will continue to climb following the pandemic and rising inflation.

The February jobs report showed that average hourly earnings grew by 0.5%, bringing the year-over-year gains to 5.8%. If this trajectory continues, the annual wage increase would be the strongest seen since 2007.

Although wage growth is expected to slow, sanctions against Russia following its invasion of Ukraine are leading to rising costs for materials, which could further drive labor costs.

Goldman Sachs economists predict that average hourly earnings will grow at 5% or more throughout 2022 compared to just 3% prior to the pandemic.

However, workers have found that wages have still lagged behind inflation, with consumer prices soaring 7.5% in January compared to the year prior.

“While labor supply has improved in the last six months, demand is just much stronger,” said Aneta Markowska, chief financial economist at Jefferies LLC. “And I think that will continue to be the case.” 

The Bloomberg survey median projects a 415,000 increase in employment, while the unemployment rate will fall to 3.9%.

As the world learns to live alongside the Covid-19 virus, job openings have reached record highs due to increased consumer demand. Still, the labor shortage has simultaneously impacted how well businesses can operate, particularly as employees demand better pay.

However, improving the employee experience means more than just boosting pay — a study from the Atlanta Fed showed that offering flexible work options could help attract young talent. While white-collar positions have been more keen on embracing this arrangement, the service and healthcare industries have fallen behind on bettering their workplace policies.