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In fact, compensation is now lower than it was in December 2019, after adjusting for inflation, according to an analysis by Jason Furman, professor of economics at Harvard University.
The employment cost index – which measures wages and salaries, as well as health, pension and other benefits – fell in the last quarter and is 2% below its pre-pandemic trend, counts given inflation. (Wages and salaries are increasing at a faster rate than benefits.)
“The booming economy is heating prices more than wages,” Furman said.
The index is not subject to the same distortions as other measures, such as the average hourly wage, because it keeps the composition of the workforce constant. The measure of average hourly earnings has fluctuated during the pandemic as many low-wage workers initially lost their jobs and are now returning to work.
Not counting inflation, wages rose 2.8% between March and June, despite the relatively high unemployment rate, a trend that reflects the tight labor market. Job postings are at record levels, according to the Bureau of Labor Statistics.
But at the same time, prices are skyrocketing. Gas costs more. Food is more expensive. Car prices are at record highs.
The consumer price index has increased 0.9% in June and 5.4% in the past 12 months – the biggest jumps for each since mid-2008, according to federal data.
Americans are noticing this, raising concerns about rising prices for homes, cars and household goods, such as appliances, according to the University of Michigan consumer survey released in late July. Still, they generally view price hikes as short-term, and improving their finances has significantly reduced their resistance to increases, wrote Richard Curtin, the survey’s chief economist, in the most recent report.
Differences by industry
Inflation-adjusted compensation is declining in most industries, but there is one notable exception: leisure and hospitality. Employers in this industry are scrambling to find workers, resulting in a 1.6% increase in wages and benefits since December 2019, according to Furman’s analysis.
But employees in the utilities sector have seen their real pay drop by 1% since December 2019. In education and health services, their real pay has fallen by 0.8%. Manufacturing fell 0.7% and in transportation and warehousing real wages fell 0.6%.
The duration of the sharp rise in inflation remains a matter of debate. President Joe Biden and the Federal Reserve argue it won’t be a long-term problem, while some experts fear the price increases are no longer entrenched.
But if the rate of growth of inflation begins to slow, workers will be able to better benefit from their pay rise.
“To the extent that inflation is transient, this decline in real wages is also transient,” said Tim Duy, chief US economist at SGH Macro Advisors, a research firm for the financial sector and policymakers.
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