Workers are likely to get their biggest raise in more than a decade, but it won’t feel like it
U.S. employers are set to increase their budgets for raises by 3.9% in 2022, according to the latest Conference Board Salary Increase Budget Survey released Tuesday. That’s the highest rate hike since 2008.
In April, 240 employers surveyed said they were only planning to increase 2022 salary budgets by 3.0%. But the 3.9% increase revealed in the latest survey means that many have been forced to increase their 2022 salary budgets in the last six months. Nearly half of companies, 46%, say this year’s wage increase for new hires played a factor in bumping up budgets for 2022, while 39% cited inflation as a factor, according to Conference Board.
Yet a 3.9% increase probably still won’t cover the effects of inflation for many employees. The cost of goods and services jumped 6.2% over the past year, according to the latest report from U.S. Bureau of Labor Statistics. And experts, including Treasury Secretary Janet Yellen, expect inflation to continue at high levels into late next year.
Bottom line, that means that those who don’t receive a raise that’s at least a 6% increase will essentially be earning less in real terms.
“Many companies determined their salary increase budgets earlier in 2021, before the full extent of the pickup in inflation and wage growth was evident, and before they knew how much other companies would be raising salary increase budgets,” writes report author Gad Levanon, who heads the Labor Market Institute at Conference Board.
Payscale, an employee compensation data and software firm, also found that companies’ 2021 pay increases were well below the annual inflation rate and the increases planned for 2022 fall similarly below inflation levels.
“Even if the inflation rate slowed in future quarters, wages will still have to catch up from the value they’ve already lost,” Payscale noted in its 2021 Wage & Labor Market Trends report published earlier this year. National wage growth during the third quarter of 2021 increased 2.7% year over year, according to the PayScale Index. Yet as of the end of September, real wages—which factor in the effect of inflation—are actually down 0.5% year over year.
But rising inflation and a raging talent war could force more employers to increase employee wages.
“Salary increase budgets may be adjusted upwards in the coming months as more companies adjust their policies to account for the acceleration in wages and inflation,” Levanon said.
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