Americans are in line for their biggest wage increase in more than a decade, according to a report released Wednesday, as companies struggle against a tight labor market and high inflation.
Businesses are expected to bump up pay an average 3.9 percent in 2022, according to the Conference Board report. That’s the fastest wage growth since 2008.
Higher pay for new hires was the most commonly cited reason for the uptick, according to the nonprofit business group, suggesting labor shortages and high turnover across industries could be giving employees more leverage. Inflation, which is higher than it has been in about 30 years, was the second most commonly cited factor.
The raises seem to be broad-based, accruing to blue collar workers and executives alike.
“The big jump was for executives, for regular employees, and for hourly employees,” said Gad Levanon, vice president for Labor Markets at the Conference Board.
The salary increases come at a time when new unemployment claims, a proxy for layoffs, are near historic lows, and millions of Americans are quitting their jobs in search of greener pastures. An estimated 4.2 million Americans quit in October, the Bureau of Labor Statistics reported Wednesday.
“No one is letting people go … they’re desperately trying to hang onto people and they’re looking to grow,” said Angelo Kostopoulos, chief executive of Akron Inc., a company that conducts an annual compensation survey of Washington, D.C.-area companies.
Kostopoulos said higher inflation is making it harder for managers to justify lackluster raises.
In past years, an employer could hand out raises of 2 or 3 percent and keep pace with inflation. That’s no longer the case: Hiring managers now find they have to provide larger offers to attract the job candidates they need, particularly for sought-after technical skills.
“Companies now see inflation as something they’re going to have to deal with for the next several years,” Kostopoulos said. “If you combine that with the Great Resignation, plus a heavy focus on technology and related skills, I think that’s where a lot of your overall budget planning increases are coming from.”
The Conference Board’s survey asks human resources executives about their compensation plans for the coming year. Their plans can change, but the surveys nonetheless hint at where wages might be going.
The projections come as overall wage growth “dramatically accelerated” during the past six to eight months, the report says. Wage increases are most substantial among those younger than 25 and those who recently changed jobs.
Wage data maintained by the Atlanta Federal Reserve shows that job switchers received wage increases of 5.1 percent on average in October, measured as a three-month moving average of median wage growth. That compares with 3.7 percent for those who stayed put. The Atlanta Fed data also shows that women outperformed men in terms of wage growth.
The job-hoppers are also pushing up wages even for those who stay put, the conference board says, as some managers scramble to prevent their best people from leaving. The conference board’s survey just covers existing employees and does not cover recent hires.
“Employers faced with extensive departures of experienced workers will raise wages faster for current employees in order to maintain an effective workforce,” the report states.
Meanwhile, inflation has surged to the highest levels since 1982, according to the Conference Board, noting that the consumer price index jumped 7.8 percent from February to October.
The organization predicted that labor shortages are likely to continue throughout 2022, likely pushing wage growth well above 4 percent.
Levanon, the conference board economist, says he sees employers on the whole returning to so-called cost of living adjustments, in which wages are tied closely to inflation. Such measures were common in the 1970s and 1980s, but fell out of favor as prices increases moderated.
“Many companies feel like they have to do something to retain their workers, and with a four percent increase, it’s not enough to compensate for the cost of living,” Levanon said. “Inflation as a consideration in wages is at its most significant in several decades.”