Higher Pay, Higher Prices: Could Rapid Career Changes Keep Inflation Skyrocketing?
Wage growth for job-switchers might have broader implications for the economy.
Workers have been quitting their jobs in record numbers for months, and turnover rates coupled with a tight labor market have left employers vying for quality talent. A new survey shared with the Wall Street Journal found that about 64% of job-switchers said their current position pays more than their previous job. Nearly half of the survey respondents received a raise of 11% or more, and 9% are making about 50% more.
The current labor market has given job switchers and seekers fierce bargaining power, and the resume bumps may continue to climb, with wage growth increasing alongside it. The survey found that 20% of workers between 25 and 54 anticipate leaving their job within the year, with another 26% saying they expect to stay between one to two years. In 2020, the average length that workers stayed with an employer was four years.
The pattern reflects a post-Covid headspace, evidenced by The Great Resignation, where workers want more for themselves and their careers and to be compensated fairly. The leading reasons people quit their jobs in 2021 were low pay and little opportunity for advancement, according to Pew Research Center.
Now, the return to work has marked new demands for work-life balance, more benefits and higher pay, and in a seeker’s market, most have found all three — and then some.
So, if workers are finally getting livable wages and benefits and knowing their worth, what’s the problem?
Well, it's not so simple. At the current rate, wage growth is incompatible with the Fed’s inflation target. Alex Domash, a research fellow at Harvard University, shared with the Wall Street Journal that the current rate implies sustained inflation above 5%.
Based on a survey conducted in April, about 27% of economists named wage growth as the biggest risk factor to inflation this year, even more so than supply-chain constraints or the Russia-Ukraine conflict. With employers battling to keep quality staff amidst a nation-wide labor shortage, they will likely be forced to increase prices to mitigate any losses and remain profitable — implying that inflation could still continue to increase in coming months, even if supply-chain disruptions and other factors cool down.
The survey shared with Wall Street Journal was based on 2,064 U.S. residents who had started a new job within the past six months, so it doesn’t necessarily offer a full picture of the job market. Still, the data provides a compelling snapshot with larger implications.
The shift in power-dynamics between employers and job-seekers has proven the authority one has in bargaining for their needs, as they should. The only problem is, the rate at which it's happening might have unintended consequences on the larger economy.
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