Business

Most Americans saw their real wages drop in 2021 — except for hotel and restaurant employees

Prices for everyday goods soared 7% in the year through December, the fastest rate in 39 years. Most workers' raises pale in comparison. ...

a grocery shopper holding a basket and examining a calorie label in the produce aisle of a grocery store
  • Inflation overtook wage growth for all but one sector in 2021 as supply shortages drove prices sharply higher.
  • Leisure and hospitality workers were the only ones to see inflation-adjusted pay grow last year.
  • Data reveals the labor shortage did little to actually help workers beat last year's inflation surge.

US workers enjoyed the strongest wage gains in decades last year. For the vast majority, it wasn't enough to outpace inflation.

Data published Wednesday showed inflation getting even hotter in December. Prices for consumer goods and services soared 7% year-over-year, accelerating from the 6.8% pace seen the month prior. The pace reflects the fastest year-over-year price surge in nearly four decades and adds to a months-long streak of elevated inflation.

Soaring prices butted heads with historically strong wage growth throughout last year. The labor shortage led businesses to rapidly boost pay as they scrambled to rehire. Workers enjoyed some of the biggest raises they've seen in decades, but for most, they still left 2021 with less buying power than they had at the beginning of the year.

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Only workers in the leisure and hospitality sector saw real wages — pay adjusted for inflation — grow through last year, Insider calculated. The group enjoyed a huge pay bump of 6.2% in 2021 after accounting for soaring prices. Hotels and restaurants were among the businesses hit hardest by the pandemic and related lockdowns. As the sector has struggled to pull workers back into the fold, firms have significantly lifted wages to ensure they'll be adequately staffed for the return of in-person service.

Professional and business services saw the second-strongest growth in real wages, but it still wasn't enough to surpass inflation. The sector saw inflation-adjusted pay fall 0.8% in the year through December. Transportation and warehousing followed close behind with a real-wage contraction of 0.9%.

Other sectors faced massive year-over-year declines in real wages as the labor shortage did little to boost pay. The information sector saw real pay tumble by 4.3%, more than any other sector, although the industry did see a pickup in real wages in December, according to the most recent jobs report. Mining and logging followed with a 3.1% contraction, and the manufacturing sector suffered a 2.5% drop.

The broad plunge in real wages reveals just how unevenly the labor shortage has actually improved worker compensation. The increased demand from employers was heralded as a boon for workers soon after it emerged in spring 2021. President Joe Biden cheered the trend as a new "bargaining chip" for employees in June, adding businesses can solve the worker shortage if they simply "pay them more." More recently, National Economic Council Deputy Director Bharat Ramamurti characterized the shift as a "Great Upgrade" as workers quit their jobs for positions with higher pay.

Yet the unusual shift hasn't been enough to actually benefit most workers after accounting for soaring prices. Still, early signs suggest the labor shortage will linger well after inflation starts to cool. Labor force participation held flat in December at levels well below pre-pandemic norms, signaling millions of people are still waiting to rejoin the workforce. The US hasn't seen a "strong labor force participation recovery yet," and it's "unclear" how long it will take for worker supply to swing higher, Federal Reserve Chair Jerome Powell said in December.

Meanwhile, December's sky-high price growth could very well represent the peak of pandemic inflation. A "sharp bounce-back" in global industry will help solve the world's supply-chain mess in the coming months, JPMorgan economists said in a Tuesday note. The Fed has also ramped up its efforts to quell inflation in recent weeks. Forecasts from the Biden administration, the Fed, and Wall Street banks see price growth cooling by the middle of 2022.

There's still hope, then, for lagging sectors' real wages to catch up. But with prices still soaring at a historic rate, it will take extraordinary wage growth for workers to actually feel like they've beaten inflation.

Read the original article on Business Insider

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