NOTThat year, you could get your biggest raise in over a decade.
Thanks to a tight labor market, workers’ wage budgets are expected to increase by an average of 4.1%, according to the latest annual wage report from consultancy Willis Towers Watson. Salary increases scheduled for next year would be the highest on record since 2008.
Nearly two-thirds of employers plan to give bigger raises in 2023 than last year, Willis Towers Watson found in an April and May survey of more than 1,400 U.S. companies.
Most employers said the wage increases were in direct response to the labor market, which has had a turbulent few years. Early in the pandemic, layoffs spiked, pushing the unemployment rate to a peak of 14.7% in April 2020.
Today, jobs are plentiful and nearly all employers surveyed said they had difficulty hiring and retaining workers throughout the year. Federal data confirms this: for most of 2022, the unemployment rate has been below 4%, with job openings nearly 2 to 1 outnumbering available workers.
Along with higher wages, employers are scrambling to offer better benefits to attract new workers and keep their current employees happy. Around 7 in 10 employers said they had increased workplace flexibility – such as allowing remote work or more flexible hours – and around half said they were boosting their signing bonuses as well as long-term incentives .
Will increases keep pace with inflation?
Inflation is the elephant in the room. While the projected increases for next year are historically high, on average they fall far short of the scorching rate of inflation.
In June, the year-over-year inflation rate hit 9.1%, according to the most recent figures from the US Department of Labor, marking a new high in four decades. The skyrocketing cost of everyday items is quickly making its way into wage discussions across the country.
Yet for the workforce as a whole, wage gains have historically lagged inflation, which means many workers are losing purchasing power right now even though they are better paid. According to the Labor Department, “real wages,” adjusted for inflation, fell 3.6% in June.
With the numbers from Willis Towers Watson, it’s important to keep in mind that a 4.1% increase in corporate salary budgets doesn’t necessarily mean that every employee’s salary will increase by 4.1%.
For in-demand roles in particular, the raise an individual gets can be much higher. And some might be less, of course.
“I actually agree with that 4.1% figure,” says Dean Baker, senior economist and co-founder of the Center for Economic and Policy Research, a left-leaning think tank. “That means we don’t have to worry about a wage-price spiral, with inflation getting higher and higher.”
Wage-price spirals occur when rising wages increase demand for goods and services, causing prices to rise even higher. Given that huge swathes of Americans are already reporting that inflation is impacting their finances, making it difficult for some to afford basic necessities, it’s a scenario that Baker and other experts would like to see the United States avoid.
Another consideration is that the Federal Reserve, the central banking system charged with keeping inflation in check, is keeping a close eye on wage growth. If wages rise too quickly, the Fed could raise interest rates more aggressively – a move that could push the global economy into a recession with high unemployment rates.
With wages up 4.1%, this scenario would be unlikely. Baker says inflation is also unlikely to stay as high as it has been over the long term.
He adds that mMost of the factors causing inflation are “one-time problems” in the process of being reversed. The perfect example is the price of gasoline, which weighs heavily in inflation calculations and has have already begun to fall sharply from their highs at the start of the year.
“In my opinion, the most important thing is to keep the economy growing and the unemployment rate low,” says Baker. “If that happens and inflation rates fall back to more normal levels, workers will do just fine with a 4.1% wage increase.”
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