Inflation erodes worker gains

Even with rising hourly pay average, earnings down 1.1%

Stagnant wages haunted the country for years until the pandemic blew the old economy away and ushered in an era of labor scarcity, giving workers more leverage. Since then, earnings for rank-and-file workers have grown at the fastest pace in four decades.

But recently released data shows how price inflation is eating into many of those higher wages. Prices rose 6.2% in the past year, threatening to completely negate gains.

Average hourly earnings are up 5.1% on the year, a significant increase after years of middling growth. But inflation is more than wiping out those gains; when adjusted for the costs of rising prices, earnings are down 1.1% on the year.

Wage growth has not kept up with increases in worker productivity over the last 40 years, as the vast economic gains reaped by the modern economy have not been shared by all workers. It is part of why income inequality has worsened in recent decades in the United States, something that has ushered in a host of other problems.

The pandemic exacerbated some of those trends, but it also brought a corresponding phenomenon: more leverage for workers as the crisis has drawn focus to the plight and needs of low-wage workers, and employers have struggled to hire in the face of the public health crisis.

Companies have raised their wages to attract or retain workers, sending average wages up. In October 2020, the average hourly wage for non-managerial private employees was $24.83; last month it was $26.26.

But the increased cost of goods is threatening those gains, as significant increases in the cost of energy, cars, food and shelter have been a corresponding phenomenon. Demand fluctuations, supply chain issues and other effects of the pandemic continue to reshape the economy.

Many workers may still be better off — these measures of earnings do not reflect the effects of policies like stimulus payments or the child tax credit, which helped many workers build up significant savings despite the crisis.

“Higher-than-normal inflation this year as we come out of a global pandemic and through a messy recovery — especially after years of low overall inflation — is not a reason to panic,” economist Claudia Sahm wrote in her Stay-At-Home macro newsletter on Tuesday. “The best way for Congress to ease economic hardship is to pass the ‘kids, care, and climate’ legislation. Keep the child tax credit coming to that family with nine kids and millions of other families.”