The Consumer Price Index jumped 6.8% in November over the same time last year, according to fresh data from the Bureau of Labor Statistics, the highest percentage increase since the 1980s.
Wage growth accelerated over the last six to eight months, especially among workers under the age of 25 and workers who switched jobs over the past year, said Gad Levanon, founder of the Labor Market Institute and leader of the Help Wanted OnLine program for The Conference Board, in a blog post.
Faster wage growth among new hires leads to pay compression, which means more experienced workers decide they also want more, he said. With historically high quit rates, new jobs are easier to find. The percentage of Americans who quit their jobs dropped to 2.8% in October — down from the all-time high of 3% recorded by the Bureau of Labor Statistics in September.
The confluence of those factors is forcing employers to spend more on salaries.
Companies are planning some of their biggest salary increases in more than a decade, according to a new survey.
The Conference Board’s Salary Increase Budget survey found companies are planning for a 3.9% increase in wages in 2022, compared to the 3% companies had expected back in April. The Conference Board decided to field the survey again in November after seeing high wage growth and inflation roil the labor markets.
Average total salary budgets for 2021 jumped from 2.6% in the April to 3% in November, according to the survey.
The biggest drivers of wage growth are new hires and accelerating inflation. About 46% of those responding to the survey said the increase in wages for new hires played a factor in their revised 2022 estimates, while 39% said inflation played a factor.
“When more experienced workers feel that their pay advantage is no longer significant, they may seek new jobs in the tight labor market, which leads to high labor turnover of more experienced workers,” Levanon said. “Employers faced with extensive departures of experienced workers will raise wages faster for current employees in order to maintain an effective workforce.”
Levanon said it’s likely the severe labor shortages will continue through 2022, with wage growth remaining well above 4%. High inflation might also increase the need for cost-of-living adjustments as well.
“A wage-price spiral — where higher prices and rising wages feed each other, leading to faster increases in both — may already be in the works,” Levanon said.
Other surveys have found similar plans for growth in salary budgets. A survey conducted by HR solutions provider XpertHR in October found companies expecting to raise their salary budgets a median of 3% in 2022.
Experts say rising inflation may push wages even higher, as businesses need to factor the increased costs employees are facing into their annual raises. Failing to do so could increase their risk for turnover at a time when it’s expensive to be in the market for talent.
Many businesses are turning to bonuses, with the amount of the average bonus having more than tripled in size, according to fresh data from payroll services provider Gusto. About 14% of all paychecks on the company’s platform in November included a bonus, up from 11% in 2020. The average size of that bonus was $1,674 in November — up from $552.06 in November 2020.
Meanwhile, about half of workers are expecting a bonus by the end of the year, according to a survey of nearly 1,000 full-time workers by financial product comparison company Magnify Money.
Another 42% believe they will get a pay raise in 2022, which is higher than the 39% who believed that heading into 2021. By contrast, about 47% believed they would get a pay raise heading into 2020.