Inflation is outpacing wages again. Many workers were already behind.
When inflation rises faster than workers' wages, it feels like they're getting a pay cut. Companies, meanwhile, benefit.
American workers' wages are once again falling short of inflation, a painful repeat of the financial struggles experienced during the pandemic. According to new research from the University of Chicago and ADP, real wages for the average American fell by over 4% from February 2021 to June 2022, leaving 37% of workers earning less in inflation-adjusted terms in December 2024 compared to four years prior.
The recent Iran war has reignited inflation by driving up oil and gasoline prices, causing the Consumer Price Index to reach an annual rate of 3.4% in July, outpacing the 3.2% increase in workers' hourly wages. This wage gap has left many workers re-experiencing a similar trend, as their real wages have not been restored. The analysis of monthly ADP payroll data covering 16 million workers reveals that most firms only make modest adjustments during periods of high inflation, failing to keep up with inflationary pressures.
This pattern has resulted in real wage losses, with most companies adhering to a standard 3% annual wage increase. When inflation exceeds 3%, real wages begin to erode, leading to a decline in purchasing power and worker well-being. Despite low unemployment, consumer sentiment has dipped due to the perception of financial losses.
Switching jobs is one way to counteract real wage erosion, as workers who change jobs typically see their wages rise in line with inflation. However, the cost of job switching, including effort, family relocation, and workflow changes, can be significant.
Written by urgent.news from CBS News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
