American workers now have the upper hand as employers rush to raise hourly wages

There are tell-tale signs everywhere that this is so.

Like the way some employers—such as Kroger Co., Chipotle Mexican Grill Inc. and Under Armour Inc.—are frantically pushing up hourly wages to try to retain employees. Or the way others—like Starbucks Corp. and Drury Hotels—are dangling hiring bonuses to entry-level applicants. Or the way CVS Health Corp. is no longer requiring job seekers to have high-school diplomas. Or the way Dan Sacco, the owner of Your Pie restaurants in Iowa, is instructing his general managers to poach workers from rivals with offers of better hours and higher pay.

“Everything is fair game now,” Sacco says.

It is unclear how long all of this will last in the wild and disjointed economic recovery that’s followed last year’s pandemic collapse. But one thing is certain: Workers are scoring the fattest pay hikes since the early 1980s. Wages for the leisure and hospitality industry have surged at an annualized pace of 6.6% over the past two years. And data released Friday showed that payrolls rose nationally at the fastest pace in almost a year, a sign of how desperate employers are to fill jobs.

“If you’re not able to get staff to cover, it leaves you really crunched and that’s what we’re seeing at the moment,” said Neil Saunders, a managing director at market research firm GlobalData who covers retailers and grocers. “Wages have gone up and have been going up.”

There’s a risk the party could peter out as the Delta variant causes U.S. coronavirus infections and hospitalizations to pick up, mostly among the unvaccinated. Some events, like the New York International Auto Show, are being canceled due to virus concerns. Companies including Alphabet Inc.’s Google, Amazon.com Inc. and BlackRock Inc. have all recently pushed back plans to return to the office as well. Economists at Bank of America Corp. have reported slowing momentum in credit-card spending.

Inflation is another complicating factor that’s limiting the benefits of pay raises. Consumer prices surged 5.4% in June from a year ago, the fastest pace since 2008. According to a Peterson Institute study, inflation-adjusted compensation for all civilian workers is now lower than it was in December 2019.

But if policy makers can tamp down on the price increases, workers should do well. Data from the Labor Department show median wage growth was 4.8% in July on a 24-month annualized basis, up from a 3.3% pace in January 2020. Service workers saw gains almost two percentage points higher than the average for all employees last month.

That could help narrow income inequality, however slightly, after years of widening gaps amid fairly stagnant wages for the service industry accompanied by soaring salaries for white-collar workers. For the most part, corporate America expects wage increases to continue.

The subject came up at a recent meeting with Treasury Secretary Janet Yellen in Atlanta, where she gathered senior leaders from companies including Delta Air Lines Inc. and Coca-Cola Co. to talk about inflation and the economy. During private discussions, some executives bemoaned the fact they still can’t fill open positions even after wages were increased, according to a person familiar with the conversation. The consensus among employers was that higher pay is here to stay.

A Starbucks location in Manhattan is offering a $200 signing bonus to anyone who joins by the end of the month. Kroger said by the end of the year the average hourly rate at its grocery stores will be about $21, when comprehensive benefits are considered, up from $15.50 in March. And recruiting efforts have spread far and wide, with Church’s Chicken passing out coupon books that say “Always Hiring.”

At Amazon, warehouse workers and other hourly employees got raises this year as the retailer seeks to retain talent. Amazon is spending heavily on signing incentives, Chief Financial Officer Brian Olsavsky said during a call with analysts last month.

“It’s a very competitive labor market,” Olsavsky said.

Darius Adamczyk, the CEO of Honeywell International Inc., is doling out wage hikes of more than 10% for some factory workers. He’s trying to raise prices to offset steeper costs for labor, materials and services. Those higher wages will probably stick, since companies rarely reverse increased pay rates.

“If labor costs go up permanently, then we’re going to have to figure out how we sustain at least some level of that pricing power,” Adamczyk said in an interview.

In Iowa, Sacco says his Your Pie pizzerias have been able to hire a few more people after offering higher wages. He pays about $10.50 an hour, and workers often earn another $2 an hour in tips. His other recruiting pitch is a better schedule. He’s poached a few workers from nearby rivals that are open until 1 a.m., later than his restaurants’ 9:30 p.m. closing time.

There are some businesses who say the tide is turning in their favor. McDonald’s Corp. CEO Chris Kempczinski said after raising wages about 5% in its U.S. locations, applications have increased significantly, particularly as the federal stimulus has ended in parts of the country. Critics have argued that workers have stayed on the sidelines because of cash transfers and unemployment benefits.

Noodles & Co., a fast-casual restaurant chain, saw a 70% jump in applications in June compared with April.

“We’re starting to see the light at the end of the tunnel in terms of the whole staffing shortage,” CEO Dave Boennighausen said.

Labor Secretary Marty Walsh says the U.S. job market is healthy as people resume traveling and eating out at restaurants, though he acknowledged that Delta variant poses a risk. Vaccinations and wage growth are encouraging people to return to the workforce, though salaries may have to go higher, he said in an interview Aug. 6 after the payrolls report.

“Wage growth is good. It’s good for the American worker,” Walsh told Bloomberg Television. “In some sectors, we’re definitely going to need to see higher wage growth for people to come back to work. But I think where we’re headed right now, all signs are incrementally going in a good, positive direction.”

—With assistance from Angelica LaVito, Thomas Black, Matthew Boesler and Alex Tanzi.