Lots of workers are getting raises, but for many, the pay hikes won’t buy them more at the grocery store or car dealership. In fact, wages are behind where they were when the pandemic began, if you take rising prices into account.
Inflation-adjusted wages, which have been falling steadily since mid-2020, are 1.2% below where they were in December 2019, according to an analysis of Employment Cost Index quarterly data by Jason Furman, an economics professor at Harvard University. The index measures wages and salaries, along with health, retirement and other benefits.
Over the last year, inflation-adjusted wages dropped 2.4%.
But there are workers in a few industries who are eking out small pay increases after accounting for the jump in prices.
Employees in the leisure and hospitality sector – which includes waiters, cooks and hotel clerks – have seen their inflation-adjusted wages rise 2% since December 2019.
But even these workers aren’t doing as well as they did prior to the pandemic, when their wages were growing at an even faster rate over inflation, Furman said.
“That’s one of the few sectors where people are making gains – it’s just that the pace of those gains have slowed down also,” he said.
Close behind are workers in the retail trade sector – including salespeople, cashiers and customer service representatives – whose inflation-adjusted wages increased 1.2% over the past two years.
Wholesale trade sector workers, such as truck drivers, saw a 0.1% bump in pay, after adjusting for inflation, over the time period.
All these workers, many of whom lost their jobs at the start of the pandemic amid widespread shutdowns, are now in hot demand as the nation recovers from Covid-19. Businesses are hiking pay and offering other incentives to attract applicants.
Not as fortunate are those working in the utilities sector, whose inflation-adjusted wages fell 1.5% during the pandemic, and in the financial activities sector, which includes tellers, financial loan officers, real estate sales agents and property managers, who saw a 1% decline in real wages.
Also losing out are manufacturing and construction sector workers, who each saw a 0.8% drop in wages, after adjusting for inflation. Education and health services employees, along with information sector workers, each experienced a 0.7% decline in real wages.
Lowest-wage workers see fastest growth
Workers in the lowest quartile of earnings have been the only ones to see an increase in wages over the past two years, after accounting for inflation. But the gains have been pretty meager.
Their real wages inched up at an annual rate of 0.6% between 2019 and 2021, according to Furman’s analysis of the Federal Reserve Bank of Atlanta’s wage tracker data.
Meanwhile, the inflation-adjusted wages of those in the second and third quartiles of earnings slipped 0.3% and 0.8%, respectively. The real wages of the top quartile fell 1.1% over the two years.
Brighter outlook for 2022
All eyes are on what happens to inflation in 2022.
The Federal Reserve is preparing to raise interest rates in an effort to tamp down rising prices. Many economists expect inflation to peak early this year.
Furman agrees that inflation will likely moderate in 2022, but that wage increases will remain strong.
“I expect workers to make gains – real, genuine gains – this year,” he said. “Probably not enough to make up for the losses in 2021, but at least we’ll start chipping away at those losses.”