The advantage of inflation: rising wages
As the economy recovers from the Covid pandemic, concerns about inflation are also mounting.
Already, the prices of some goods, such as cars, are significantly higher, fueling fears that a sudden rise in inflation could reduce purchasing power over time.
While consumers may pay more for everyday items, it’s not all bad news when it comes to household income and spending. Companies facing labor shortages are also paying more to get workers through the door.
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“One of the main challenges for employers, along with finding workers, is to retain their current employees and one way to do this is to offer current employees a new opportunity and a pay rise,” said Mark Hamrick, Senior Economic Analyst at Bankrate.com. .
“In the struggle for power between workers and employers, the balance has shifted in favor of workers,” he said. “We haven’t always seen this in the past.”
Workers have already seen a bump in their June paychecks. According to the latest tally, the average hourly wage increased 0.3% month-on-month and 3.6% year-on-year, according to the Ministry of Labor.
However, incremental salary increases are unlikely to keep pace with the rising cost of living, warned David Weliver, founder of personal finance site Money Under 30.
“There’s going to be a lag,” Weliver said. “Prices at the gas pump or the grocery store can change very quickly, but you might not get that increase for a year.”
Companies are often slow to raise wages, especially if the purchase of raw materials costs them more, Weliver said. “They will feel a squeeze in profits and the last thing they want to do is pay their workers more,” he added.
“This is the delicate situation we find ourselves in.”
And yet, an acute labor shortage in certain industries, such as leisure and hospitality, adds an unprecedented twist, Weliver added.
On the job search site Indeed, 4.1% of companies were offering cash bonuses or other hiring incentives in June, more than double the rate a year ago. Some food preparation jobs even advertised bonuses of $ 100 to $ 2,500.
And again, some economists fear that a too rapid increase in wages will push companies to raise prices and create the very phenomenon of inflation, doing more harm than good.
President Joe Biden rejected this view. “Many companies have weathered this crisis extremely well, and good for them,” he said in a speech in May.
“The simple fact is, however, that corporate profits are the highest they have been in decades,” the president added. “Workers’ wages are at their lowest for 70 years.
“We have more than enough leeway to increase workers’ wages without raising customer prices. “
The Federal Reserve also played down recent inflation concerns, saying it expects the current wave of price pressures to subside over time as the economy returns to normal.
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