According to a new survey, the amount of money many US firms set aside for increases is likely to rise at the quickest rate in over a decade as employers compete to keep and hire workers in a historically tight labor market.
Budgets for wage hikes are expected to jump 3.9% next year, the biggest annual leap since 2008, according to a November survey of return executives by the Conference Board, a non-profit jobs membership group of typically large businesses.
The growing cash reserves are intended to entice young workers and retain existing employees at a time when a record number of jobs are unfilled and consumers are dealing with the worst inflation in 39 years.
“Growth in wages for new hires and accelerating inflation are the main causes of the jump in salary increase budgets,’’ the report said. It added that 46% of executives jobs said higher pay for new employees was a reason for the larger pay pools that are expected, while 39% said inflation helped fuel the increase.
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The consumer price index rose 6.8 percent in November compared to the previous year, the fastest rate since 1982, with prices for groceries, gas, rent, and automobiles all rising, according to the Labor Department on Friday.
Budgets for salary increases have already increased, with the average pool of cash increasing by 3% in the last month's survey, compared to the 2.6 percent predicted in an earlier survey in April.
A labor shortage has triggered a chain reaction, allowing younger workers to earn higher wages, more experienced workers to pursue new positions and potentially higher pay, and blue-collar workers to demand union representation and better working conditions.
“The rapid increase in wages and inflation are forcing businesses to make important decisions regarding their approach to salaries, recruiting, and retention,’’ the Conference Board report said, It noted that labor shortages will probably continue through 2022 while wages likely increase by more than 4%. Blue-collar workers as well as those in unions are also expected to see pay hikes.
“Wages for new hires and workers in blue-collar and manual services jobs will grow faster than average,’’ the report wrote. Workers, from Kellogg cereal facilities to university faculty to Starbucks stores, are demanding higher wages and improved working conditions amid a pandemic that many say magnified inequities and disparities.
According to the Conference Board, the pay raises that many businesses are offering may cost consumers if companies raise the price of services or goods to cover the higher wages. The Federal Reserve may raise interest rates beyond the two increases that economists are already forecasting for next year to help slow inflation, according to the Board.
