The Federal Reserve Bank of Atlanta reports that wages for workers who remained at their employment increased 5.5% in November compared to a year earlier. 

According to the report, that was up from the 3.7% annual rise in January 2022, which was the biggest increase in the 25 years of record-keeping.  The Atlanta Federal Reserve data also shows that employees who moved employers experienced wage increases of 7.7% over the same month the previous year.

This is all frustrating news for the Federal Reserve who has been working diligently to tame inflation.  In fact, Jerome Powell, the head of the Federal Reserve, recently asserted that the largest obstacle to containing inflation is the labor shortage, which is providing Americans more leverage to demand higher wages.

It is reasonable to expect that the Federal Reserve’s efforts to rein in inflation (i.e., raising interest rates) will slow the growth of wages, and there is some evidence this is occurring.  The question is by how much and when will wages growth slow.  Labor shortages, as noted by the Fed, will continue to act as catalyst for higher wages and while inflation has slowed, it still remains at record levels.

The U.S. labor force participation rate peaked in 2013 at about 63% and stayed there until the COVID-19 pandemic hit. As of November 2022, it was 62.1%.  Many factors are contributing to the decline in participation including retirements, childcare concerns, and other macro factors.  Unless the labor participation rate climbs, we could see strong wage growth particularly in some sectors and industries that can’t be automated or redesigned.

In a recent Ask the Expert article in WorldatWork’s 4^th quarter Workspan magazine, it covered how employers were addressing inflation.  They noted that although pay budgets are at their highest levels in 20 years, employers were not meeting the rate of inflation, noting accurately that inflation is subject to wild swings and the more conservative approach is the more prudent one.

The Workspan article also noted that now is a good time for employers to develop strong compensation systems and programs.  These programs will help pay delivery and administration to be more intentional and centered around the employee’s growth and development and not exclusively tied to the vagaries of the inflation rate.

For assistance on developing formal compensation programs contact ASE Compensation Consulting service for a free consultation.

https://www.politico.com/news/2022/11/30/feds-powell-inflation-workers-wages-00071403