Workers' wages are rising, but not enough to keep pace with inflation surge
'Real wages' actually shrank 2% in June
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Companies across the country are raising wages at one of the fastest paces in decades, but workers may not be reaping the benefit of those gains amid a recent burst of inflation.
Average hourly earnings climbed in July for the third consecutive month, rising 4% from the year-ago period and 0.4% over the month, according to the Labor Department's monthly payroll report. That follows similar gains in April, May and June.
Low-wage workers appear to be the biggest beneficiaries of the pay increase, with industries such as leisure, hospitality and retail – which employ roughly 30 million people combined – reporting some of the strongest gains.
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The increase is in part due to an unusual paradigm in the labor market: Businesses are desperate to hire workers and take advantage of the surge in consumer spending as Americans – flush with cash – venture out to eat at restaurants, shop and travel. Even though there are a record number of job openings, there are still 5.7 million out-of-work Americans.
But some of those gains are being erased by the rapidly rising price of consumer goods and services: "Real wages," which measures income after accounting for inflation, dropped by nearly 2%, on average, in June compared with 2020. In June, consumer prices jumped 0.9% from the previous month and 5.4% over the past year – the biggest increase in 13 years, the Labor Department said.
Republican lawmakers have likened the growing disparity between wages and consumer prices to a pay cut for working-class Americans.
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"Costs for working families have shot up," Senate Majority Leader Mitch McConnell said in mid-July. "Inflation is running so hot that even though American workers have seen a 3.6% pay increase on average since last year, it’s been completely swamped and then some by inflation. In real terms, American workers’ pay has actually gone down nearly 2% since last July."
Still, rising inflation and stagnant wages could put fresh pressure on businesses to up workers' pay, Morgan Stanley economists said in a recent analyst note. Even though average earnings have increased in recent months, 79% of industries are still seeing inflation outpace wage growth.
"While hard to know exactly how these political forces impact wage growth in the short-term, we suspect this is a longer-term tailwind toward rising and broadening wage growth," the bank said.
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The White House and Federal Reserve Chairman Jerome Powell have mostly downplayed rising prices, blaming the increase on widespread shortages that have disrupted the global supply chain and pent-up demand among consumers. Though Powell has said inflation could turn out to be "higher and more persistent than we expect," he has repeatedly said that it's likely transitory.