The American worker got a 5.7% raise in January, but it may not be enough to solve the labor shortage

February 4, 2022, 3:48 PM UTC

Despite adding nearly half a million workers last month, even during the height of the Omicron surge, the U.S. is still missing roughly 5 million pre-pandemic jobs. 

So what will it take to bring those workers back? It seems that higher wages are not enough on their own. 

Wages have been on a tear for the past few months as the Great Resignation has raged on, and employers have had to compete more fiercely for workers. January was no different—U.S. workers at private companies earned 23 cents more last month, and the average wage hit $31.63 per hour in December, according to the Bureau of Labor Statistics. Over the past year, workers’ hourly pay has increased by 5.7%. The average hourly wage for production workers was $26.92, up by 6.9% year over year.

“Even as they faced yet another pandemic spike, workers remained in firm control of the labor market last month as wages rose again and employees continued to seek new opportunities at historic rates,” says Karen Fichuk, CEO of Randstad North America. 

These compensation increases are noteworthy, even if inflation is eating into wage gains. That’s because the current rate of inflation is not expected to last long term.

“Maybe someone’s purchasing power isn’t as strong this month, but three months from now, when they still have that job at that wage, it will be,” says Lauren Melodia, deputy director of macroeconomic analysis at the Roosevelt Institute. 

And while there’s been some discussion that increasing worker compensation could lead to a wage-price spiral—when rising wages lead to an increase in prices—that isn’t happening yet. “We have a long way to go until we’re worried about wages on a macro level,” Melodia says. 

But whether these wage gains are enough to get workers off the sidelines remains to be seen. The overall labor force participation ticked up as well to 62.2%, but that was mostly owing to annual adjustments to the population. 

The prime-age labor force participation rate among those ages 25 to 54 years old, for example, is arguably a more important measure of core labor market strength because it omits people on the fringes of work, according to Aaron Sojourner, a professor at the University of Minnesota’s Carlson School of Management. Yet this ticked up only 0.1 percentage point in January, despite the wage hikes. 

“There are a lot of these people still outside of the labor force right now, and the question is, Are the wage gains enough for them? And I would say I don’t think it’s enough,” Melodia tells Fortune. 

“The people on the sidelines or outside of the labor force, I would say, need more than just increased wages,” Melodia notes. People want better working conditions overall. They need things like affordable childcare, paid sick leave, stable work schedules, and high workplace safety and health standards, she says. “Those are some of the things that are going to really help draw people back into the labor force.” 

And with the Build Back Better agenda stalled in Congress, those benefits are something that employers may have to shoulder in order to entice workers back.

“Businesses seeking to attract and retain top talent need to understand what employees have come to expect from their employers,” Fichuk says. “In addition to higher wages, workers are demanding a safe working environment, increased flexibility, and new opportunities for growth. They’ll join companies who meet those demands.”

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