Another indication underlying inflation won’t drop significantly just on its own.
By Wolf Richter for WOLF STREET.
Workers know what they’re doing when they quit one job to take a new job: They’re trying to get a better job, with higher pay, better benefits, etc., because their current employers don’t want to step up to the plate because they have to keep their costs down. In many companies, employment costs are over half of the total costs, and even small increases in pay across all jobs have a big impact on profit margins. But now, workers are arbitraging this tight labor market for their benefit – and in doing so, they’re forcing bigger pay increases on employers.
Pay increases have been big this year and last year even for “job-stayers.” But they’re huge for “job-changers.” According to the ADP National Employment Report today, the median change in annual pay in October was:
- Job-stayers: +7.7%
- Job-changers: +15.2%.
To beat CPI inflation that has been raging at 8% to 9% this year, workers have to change jobs; if they’re not changing jobs – the loyal employees who stick it out through thick and thin – well, they might appreciate the pay increases, but they’re just falling further behind.
But some of the job-changer pay-exuberance has been fading just a tad in recent months, as annual pay increases, though still huge at 15.2% in October, are slightly down from the 16%+ range earlier in 2022.
Job-stayers annual pay increases of 7.7% have been roughly the same since June, and have been getting outrun by CPI inflation, which is the normal procedure.
The huge pay increase for job changers is another sign of just how tight the labor market is, and how employers are struggling to hire people to fill job openings, and how they’ve been using aggressive salary offers to fill vacant slots.
The result is the massive churn and job hopping that employers have been complaining about because they’re having trouble retaining people – as other employers are poaching their workers by offering them higher pay – and they’re having trouble hiring people to fill the slots, and they’re having to pay more to hire people away from other companies to fill those slots.
The huge number of voluntary quits, the large number of hires, and the historically low numbers of layoffs month after month have also been documenting this phenomenon, such as the data on quits, hires, layoffs, and job openings yesterday.
These pay increases are supported by the huge number of job openings, which in September at 10.7 million, were up by 51% from September 2019, according to the Job Openings and Labor Turnover Survey by the Bureau of Labor Statistics yesterday. Job openings increased in all major sectors except wholesale trade, education, and manufacturing. Even in manufacturing, job openings were up by 84% from three years ago. And workers know how to arbitrage this situation for their benefit:
Pay increases by industry:
The biggest pay increases occurred in what is typically a lower-paying industry, Leisure and Hospitality (hotels, restaurants, etc.), where the pay for job-stayers jumped by 11.2% in October, compared to a year ago, according to the ADP National Employment Report (all data for job-stayers):
- Natural resources/mining: +7.9%
- Construction: +6.9%
- Manufacturing: +7.7%
- Trade, transportation, and utilities: +8.4%
- Information: +7.3%
- Financial activities: +7.8%
- Professional and business services: +6.8%
- Education and health services: +7.3%
- Leisure and hospitality: +11.2%
- Other services: +7.0%
Pay Increases by employer size:
Bigger companies raised wages by more. At the biggest companies, pay increases for job stayers are about in line with CPI inflation.
Smaller companies raised by less. At the smallest employers, pay increases were far below the rate of CPI inflation, in part because for many small employers, every day is a struggle, and they don’t have the financial resources big companies have, and a surge in payroll expenses, on top of the surge in other input costs, can produce an existential crisis:
- 1-19 employees: +5.6%
- 20-49 employees: +7.3%
- 50-249 employees: +8.0%
- 250-499 employees: +7.9%
- 500+ employees: +8.4%
More fuel for inflation.
The other thing these big pay increases show is that underlying inflation – with services inflation now raging at 7.4% – won’t drop significantly just on its own, and that the Fed is going to have its work cut out for it.
Inflation is rarely outpaced by median wage increases. To beat inflation, most people have to get a better job, or get promoted – that’s typically how it is. And these kinds of big wage increases are further fuel for big inflation going forward. And that’s why the Fed keeps referring to various aspects of the tight labor market as an indication as to when enough is enough, and it doesn’t look like it’s enough yet.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.