[Asia Economy New York=Special Correspondent Joselgina] U.S. employers are implementing wage increases at the highest level in 25 years to prevent employee resignations amid labor shortages. This is expected to act as an obstacle to the Federal Reserve's (Fed) ongoing high-intensity tightening efforts, as it ultimately contributes to inflationary pressures.
The Wall Street Journal (WSJ) reported on the 2nd (local time), citing the Federal Reserve Bank of Atlanta, that as of November last year, the wage growth rate for workers who stayed at the same job for more than a year rose by 5.5% compared to the previous year. This is the highest figure in 25 years since the Atlanta Fed began conducting related statistical surveys. Considering that the annual growth rate was 3.7% as of January last year, the wage growth trend continued throughout the year, contrary to the Fed's rate hike moves aimed at lowering inflation.
During the same period, wages for workers who chose to change jobs soared by 7.7%. WSJ explained, "This is because companies are struggling to hire employees due to many job openings compared to the number of unemployed," adding, "To prevent employees from leaving for higher-paying jobs, companies are also raising wages for existing employees."
Leila Okean, Chief Economist at Lightcast, said, "Workers in sectors such as leisure and food service can easily find jobs that pay more," and added, "Employers will raise wages because they do not want to lose employees who have already been trained." As the economy recovers from the pandemic and the labor market remains strong, employees' bargaining power has increased.
This runs counter to the Fed's plan to reduce inflation. The unprecedented wage increases by U.S. employers are exerting upward pressure on inflation, which is at its highest level in about 40 years. High wages, combined with an overheated labor market, can further fuel service price pressures. This situation is cited as a reason why Fed officials continue to voice hawkish views despite recent signs of easing in major inflation indicators such as the Consumer Price Index (CPI). In the previously released Beige Book economic report, many employers also identified wage increases as a factor contributing to inflation pressures this year.
Fed Chair Jerome Powell has repeatedly expressed concerns about wage growth in official settings. At a press conference following the Federal Open Market Committee (FOMC) meeting in December last year, he warned that "service price inflation (unlike goods price inflation) will not decline quickly," indicating that wage-driven inflation pressures remain high. He believes that the current average wage increase rate of 5-6% must fall below 3.5% for the Fed to achieve its 2% inflation stabilization target. In a speech at the Brookings Institution the same month, he also pointed out that "wage growth is still at a level too high to control inflation."
Accordingly, considering recent wage growth and turnover rates, many evaluations suggest that significant wage pressure is likely to persist for the time being. According to a Robert Half survey released in the second half of last year, more than half of professionals believe their wages are low. Additionally, 4 out of 10 are potentially considering changing jobs with a wage increase of more than 10%.
Moreover, it is anticipated that companies will adopt a strategy of raising product prices to offset the burden of these wage increases, thereby passing the cost onto consumers. This could again act as a factor driving inflation higher.
Meanwhile, there are indicators suggesting that the overheated labor market is gradually cooling due to the Fed's accumulated tightening. According to WSJ, the average hourly wage in November last year rose by 5.1% compared to the same month the previous year, showing a slight decline from the peak of 5.6% in March of the same year.
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