In recent months, hourly employees have seen their wages grow at a decent clip. This is partially spurred by the aftermath of the pandemic. Along with reducing the number of people in the workforce, it altered how those remaining viewed their jobs. Ultimately, this led to the Great Resignation and essentially made higher pay a must for companies that needed to recruit or retain hourly workers.
However, inflation is also part of the bigger picture. Since inflation doesn’t just impact consumers – it harms businesses, too – many people are wondering how long these pay bumps will continue. If you’re trying to figure out when wage increases for hourly employees will slow down, here’s what you need to know about the impact of inflation on salaries and what may lie ahead.
How Inflation Impacts Wages
Prices have been rising in many spending categories for months on end, straining budgets for both consumers and companies. Supply chain disruptions, soaring housing costs, production struggles, and the aftermath of the pandemic are all playing a role, leading inflation to hit a 40-year high.
While inflation doesn’t always push wages up, that’s the situation that’s occurring today. Primarily, this is because inflation is coupled with low unemployment and higher pay expectations from workers. If unemployment was also high, then wages for hourly workers would likely remain more consistent. However, that isn’t reflective of the current US economy.
Instead, it’s a candidate’s job market. That gives workers a degree of leverage, as companies can’t easily find reliable, skilled employees to join their teams. As inflation remains an issue, workers will remain inclined to use that leverage, allowing them to secure pay rates that feel more comfortable based on the current state of the consumer market.
This is particularly true since wage growth is lagging behind inflation. While pay rates are rising, the purchasing power of a dollar diminished far enough to offset any increase in earnings. That means that employees receiving more pay are functionally behind where they were before inflation became an issue, something that will keep them pressing for more income.
The impact on companies is reflected in higher operating costs. Viewing this as burdensome is common, especially as businesses are also affected by rising prices for goods and materials. While some of the financial challenges could potentially be offset by also increasing prices, whether that’s viable may vary from industry to industry.
When Will Wage Increases Slow Down
Generally speaking, companies should expect wage increases to remain the norm for some time. Ultimately, until inflation is tamped down and the loss of purchasing power significantly slows or corrects, employees will continue to press for higher pay.
Additionally, if labor shortages remain pervasive, companies may feel they have little choice but to raise wages as a means of attracting talent. That can create a self-perpetuating cycle where companies competing for the same talent continue to increase pay rates in a tit-for-tat manner.
Some estimates suggest that wage growth may slow as 2022 draws to a close, though it may not return to “normal” levels until sometime far after. Additionally, whether that occurs may be dependent on inflation. If it continues to skyrocket, the timeline could get extended. As a result, companies should watch inflation figures closely, allowing them to potentially anticipate wage shifts before they become widespread.
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