Inflation zaps big raises of pandemic era

The pandemic era’s large pay hikes for California workers look tiny after inflation’s huge bite.

My trusty spreadsheet reviewed government statistics on average weekly wages and inflation rates. The focus was comparing the pandemic era (2020 through 2022) to 2012-2019 — before the coronavirus struck and a time when people bitterly complained about miserly pay increases.

So, just how deep is inflation’s pain?

Glass half-full

Yes, raises have soared in the pandemic era for reasons ranging from a worker shortage, employees willing to switch bosses to get better pay and a surprisingly robust economic rebound from coronavirus-related business limitations.

Ponder that California weekly wages grew at a 5.2% annual pace in the pandemic era; that’s the 15th-best among the states and beats the 4.7% national gain.

Compare those raises to what bosses handed out in prepandemic 2012-19. In those years, California’s weekly wages grew at an average 3% annual pace (also No. 15) versus 2.6%-a-year nationally.

Glass half-empty

You know by now that inflation has soared since 2020.

And you know why: Everything

from too much stimulus to a shortage of goods to soaring energy costs to distribution headaches to, yes, bosses passing along the cost of fattened raises to customers.

This ugly cost-of-living picture adds up to the consumer price index jumping at an average 4.5% annual rate in 2020 through 2022 versus a 1.6%-ayear inflationary pace in 201219.

That near tripling of inflation over this extended period took a serious bite out of what otherwise would seem to be generous raises. Let’s think about what economists call “real” pay increases — that’s wages after the cost of inflation.

California’s “real” raises in 2020-22 averaged only 0.7% a year. Nationally, raises after inflation were only 0.2%.

The cost-of-living drag makes 2012-19’s seemingly slim pay hikes look good. Why? Remember, inflation averaged only 1.6% a year in that period.

That translates to California’s “real” raises in those prepandemic years averaging 1.4%, topping the 1% rate nationally.

Bottom line

Larger raises make some workers feel better about their jobs, but the overall reality is that inflation strips the buying power of recent pay hikes.

In the pandemic era, California’s annual pace of real pay raises was cut in half from 2012-19. And the Golden State is not alone.

In 37 other states, the past three years of pay hikes — after inflation — also failed to beat the real raises of the previous seven years. Nationwide, the pace of real raises fell by 80% in this timeframe.

Remember, these numbers paint a picture of what happened to the typical worker. Think of the chaos created for people who weren’t getting mid-range pay hikes while having to balance a household’s finances in today’s overinflated economy.

Plus, inflation has averaged 8% so far this year. Few workers will get pay hikes exceeding that in the coming year.