Job Income Isn’t Keeping Up With Rising Prices

Americans believe they’re paychecks aren’t cutting it in a high inflation environment.

The U.S. inflation rate rose 0.1% in August compared to July as measured by the U.S. Labor Department’s monthly Consumer Price Index.

The index settles at 8.3% on a year-over-year basis, keeping the pressure firmly on consumers and businesses to absorb higher prices on everything from food prices to medical costs.

A tightening employer payroll environment isn’t helping. Seemingly endless waves of high CPI numbers have caught up with consumers where it matters most – in their paychecks, which largely aren’t keeping up with inflation.

According to new data from Bankrate, 55% of working Americans report their income power is waning, especially in terms of household expenses. Only 33% of the U.S. workforce said their paychecks either kept up or exceeded the hike in high prices due to inflation.

“Inflation that’s run at the highest levels in more than four decades has stripped buying power away from households of all walks of life,” says Greg McBride, CFA, the chief financial analyst for Bankrate. “Even half of those receiving a pay raise, getting a promotion, or taking on new responsibilities said that higher pay falls short of the increase in household expenses.”

Workers Looking for Relief, But Firms Are Slow to Help

With all the headlines on U.S. household budgets falling behind in inflationary times, the media focus hasn’t fallen on a key underlying issue: why are worker paychecks underperforming against rising prices right now?”

“Inflation has stripped away the political and media coverage that corporations have hidden behind to avoid raising worker pay over the past decade,” said Andrew Duffy, behavioral economics and labor expert and CEO of SparkPlug, an employee motivation services company. “While the traditional economics textbook says that, in a competitive labor market, higher profits alone should translate into higher worker pay. Yet, U.S. corporations have successfully avoided raising wages for years, except in outlier industries like technology.”

The current labor shortage has forced businesses to offer higher wages to attract employees back into their workforces. But that’s not helping as much as company executives may think.

“Unfortunately, these expected wage increases are only half as large as the hit that workers have experienced to their purchasing power due to inflation, so they’ll continue to suffer significant economic consequences,” Duffy said.

In the current inflationary environment, U.S. workers are pursuing additional income by whatever means necessary, whether that’s moonlighting as an Uber driver, quitting for a better-paying job in their existing industry, or leaving their industry entirely, Duffy noted.

“Unfortunately, each of these strategies creates risk for the employee,” he said. “If their on-the-job performance suffers due to burnout from working multiple jobs, they may find themselves a target of layoffs.”

Real Risks Ahead for Workers

U.S. career professionals looking to jump ship for a better paycheck may want to think twice – at least until the economy improves and rising prices stabilize.

“As the labor market becomes more balanced, job mobility will soften, providing further pressure on real wages at a time when most workers are struggling to make it to the next paycheck,” said Jeanniey Walden, chief innovation officer at DailyPay, an on-demand pay provider for companies.

Current employment trends show a general slowing of hiring as companies are being more strategic in which departments, products, and initiatives to pour resources into.

“We’ll see increased investment in revenue-generating roles and product development, as the labor market for highly skilled talent remains high and competitive, but very selective,” Walden said. “If you leave a job for simply a bump in pay, and don’t factor in culture or the company’s mission, you run the risk of burning out early and not being as engaged.”

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