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Runaway Inflation Is Wiping Out Gains From Higher Wages

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Before Americans congratulate themselves on securing higher wages, they should realize that inflation is taking out their gains. In fact, compensation rates are now lower compared to December 2019. 

RELATED: Inflation Goes Wild: Consumer Prices Up 5% In May

Companies Are Now Offering Higher Wages

Companies across American are offering higher wages to attract new workers and retain existing employees. With demand rising again, they’ll need all hands on deck if they plan to return productivity back to pre-pandemic levels. 

However, rising inflation is putting a damper on higher wages. Even as American workers take home bigger pay, higher costs of goods and services are taking a bigger bite out of their budgets.

According to an analysis by Harvard economics professor Jason Furman, compensation is now lower than it was in December 2019. Furman adjusted wages for inflation to arrive at the number.  

Employment Cost Index

The Employment Cost Index measures wages and salaries and adds benefits such as health, retirement, and others. During the last quarter, Furman said that the ECI is now 2% below pre-pandemic levels. Note that wages and salaries grow at a faster pace compared to benefits. “The hot economy is heating prices more than it is heating wages,” he added. 

Unlike other measurements, the ECI index is not subject to distortions like average hourly earnings. Currently, the average hourly earnings metric is going back and forth. Many lower-wage workers lost their jobs earlier and are now returning to work.

Inflation is Outpacing Wage Increases

Compensation rose 2.8% between March and June, even with the relatively high unemployment rate. This reflects a tight labor market that has more jobs than workers. In fact, total job openings posted a record at 10.1 million in June, per data from the Bureau of Labor Statistics.

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Despite the record opening, around 8.7 million Americans, whether unemployed or working part-time, are still looking for full-time jobs. 

However, inflation is running at a faster pace. Food and fuel costs increased due to distortions in the supply chain. House prices went up due to soaring demand and costlier materials, and car prices (whether brand new or secondhand) are also rising.

The consumer price index rose 0.9% in June and averaged 5.4% over the past 12 months. These are the largest recorded gains since 2008. 

Even as Americans winced from higher prices, many believe these are short-term. The higher salaries also cushioned them from feeling the impact, according to Richard Curtin, a BLS chief economist. 

How Long Will Inflation Last?

Experts and administration officials disagree on how long inflation will linger. President Joe Biden and the Federal Reserve insist that higher prices won’t turn into a long-term problem. However, many economists think that inflation is far from over. 

If ever inflation does start to ease, American workers can enjoy their higher wages. “To the extent that inflation is transitory, this dip in real wages is also transitory,” said Tim Duy, chief US economist at SGH Macro Advisors.

Watch the WXYZ TV Detroit video news reporting that Experts say inflation tied to economy reopening:

Do you agree that inflation is offsetting the gains from higher wages?

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Do you agree that wages, while higher now, are offset by higher prices? In addition, do you think inflation is transitory, and that American workers will enjoy their pay increases long term?

Let us know what you think about the relationship between pay increases and inflation rates. Share your comments below.

7 Comments

7 Comments

  • Ayodele Awolana says:

    Mark my words, in 2022, the price of gasoline will be $7.00 USD per gallon! The cost of a loaf of bread will be more than most young families can afford. This is just the beginning of the Marxist, Communist regime in America. I never thought I would live to see this day.

  • Anonymous says:

    Businesses are now looking to make up their losses due to the pandemic. Higher pricing will be here to stay unless an economic downturn forces them lower. The problem with forcing higher wages is that all the businesses look to recover the increased operating costs. A better choice for the consumer was to work a second job. Oh well, the cats are out of the bag now and we will have to live with the choices we made. Good luck!

  • The professor says:

    Being a former veteran you can survive on a small amount of food every day … 2 tablespoons of peanut butter a day will keep you alive and nourished … two pieces of whole wheat bread soaked in olive oil will sustain you ….. A jar of baby food baby food is one of the best kept secrets if it’s good for babies it’s good for you ….. an apple a day will keep the grim reaper away … you do not have to have three meals a day just certain foods will keep you functioning and make sure you drink plenty of clean water

  • Denny Jackson says:

    I think the government is not helping the lower income families and prices are going to stay like they are they’re trying to destroy the middle class

  • Garnett says:

    You ain’t seen nothing yet. (Pardon my French). With the successful theft of the election the Socialist are wasting no time in putting their plans into action. Just as in any Socialist nation we will now see the shelves empty and the prices through the roof. There will never be any relief as long as they are in power and there is only one way to remove them from office and that is a revolution. That is why Biden and his gang of thieves are working so hard to take our guns away from us and why they are slowly clamping down on free speech. Beware America!!.

  • Bob Mays says:

    Besides for our government spending money like crazy and putting us into this situation.
    Everyone that has lost money is trying to charge more to make up for the monies lost and the bills that were piling up.
    I recently read something about the relief monies that were put aside to help people with their past due mortgages are already dried up. And when the banks start to foreclose on the millions of homes we will start to really see the damage that has been done.

  • Anonymous says:

    Having lived through the inflationary crisis of the 1970’s this is the beginning of mortgage rates exceeding 23% compeared to the 1970’s it will take a very longtime for our economy to balance out. Raising minimum wage was not the answer back then and it is not the answer now. The crooks we have in crongress are not the answer to our way of life. Everyone should be at arms fighting against the give a ways congress is shoving down our throats. Since when will you be better off spending more than you have right now. It is common since people. Deficit spending has never helped anyone and it will not now. This kind of spending is self centered, ego inflating for those seeking power. It never has been a benefit to the now non existent middle class. Thinking to increase taxes on the rich is sheer fodder that we will balance out the pluses and minuses in our economy. We are a society of I am ENTITLED to have hand outs from our government. Since when? Over 46%of our citizens do not pay taxes. Especially those who feel good hat the Gov’t owes those non paying taxpayers. Just where does this part of our society think we are going to get the money for those who think they are entitled to give away programs. Especially from those incompetent political crooks we elect into office. Crooks Yes. !!!!!!!! To just print paper is sheer folly!!!!! Our society has no clue how important it is to balance the budget. Deficit spending is a recipe for sheer collapse of our way of life. Wake up America. This is not a dream world

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