Inflation and Diminishing Wage Gains
Many Americans experienced wage increases over the last several years; the national average was about 4.5% last year. Unfortunately, the progress in wages is all but canceled out by increasing inflation. According to the Bureau of Labor and Statistics, prices increased by an average of 7.9% over the last year.
Therefore, while many Americans saw increases in their salaries and hourly wages, they are no better off than before. In many cases, American families are in a worse position than they were even a year ago, unable to afford necessary goods and services.
Unfortunately, inflation creates a problem for workers and employers. Employers need to increase wages to attract employees, but employees need to chase higher pay only to afford the bare minimum.
If inflation settles, as most economists expect, the country could experience real wage gains. However, if rates continue to rise, any prior gains will become nonexistent, with further economic strain on the horizon.
Increased Wages and Decreased Buying Power
Front-line workers experienced some of the most significant wage gains over the last few years. Unfortunately, according to several studies, inflation erased nearly half of those gains.
Many workers fought to achieve a $15 minimum wage. While many businesses started increasing minimum rates, the wage is no longer feasible, especially in terms of pulling people from poverty.
The decreased buying power of the dollar means people can no longer afford casual spending. Many people find their income is barely enough to cover necessities. The inability to buy will only drive prices and markets higher. Additionally, many industries still struggle to meet market demands, meaning prices increase, further weakening buyer power.
Mental Health Crisis of Inflation and Increased Workloads
The Great Resignation is only fueling the challenges of income and inflation. Employees are quick to leave positions for pay increases, leaving businesses in a state of flux. The lack of continuity in staffing means other employees need to pick up the slack.
Employees left in the wake of the Great Resignation experience burnout. Additionally, they become bitter and demand more money, and who can blame them; they are taking on more work. The problem is there is only so much money to go around.
Companies need to offer top-tier wages to recruit new candidates, but they also must try to satisfy and support their existing staff. Businesses must balance employee needs and wants while also dealing with inflation themselves.
Are Pay Raises the Answer to Inflation Woes
The most apparent solution for inflation is to offer raises that compete with rising prices. The problem is inflation essentially demands a raise of more than 5%, which many employers are unwilling or incapable of doing.
Wage increases are fine for large corporations, those companies with the excess to deal with the financial burden, but it is not suitable for many medium and small businesses. Smaller companies do not have the capital to raise wages by any suitable amount.
For smaller organizations, they need to look at their operations. Finding ways to streamline processes and cut out redundancies might make enough of an impact to provide better perks and benefits. For companies that cannot afford pay increases, the solution is likely better health coverage, more paid time off, remote options, etc.
Workers want pay increases to match inflation rates. Unfortunately, many companies cannot afford to offer raises. People, employers and employees, may need to find compromises and settle on more benefits or perks.