What’s your raise really worth? Inflation has something to say about it.


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For the lowest-paid Americans, real wages — adjusted for rising prices — fell 0.5% in August from a year earlier; ‘I’m just kind of scraping’

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This must be the best time for low-paid workers, because pandemic-induced labor shortage Force employers to rapidly increase wages. Yet for many, it doesn’t feel like it, as those same disruptions have pushed inflation closer to its highest rate in a decade.

Troy Sutton, 61, lost a job as a mentor at the start of the pandemic in 2020, which paid $12 an hour, and spent more than a year unemployed. Last summer, he took a job as a mentor at the University of Pennsylvania, a job he said pays $18 or more an hour.


But Mr Sutton’s water, electricity and cable bills are higher than a year ago, he said. He is spending more for veterinary check-ups and dog food for his two Chihuahuas, Princess and Precious. At supermarkets near Mr Sutton’s home in Philadelphia, eggs rose from about $2 a dozen in 2019 to $3.69 during the pandemic.

He and his wife began shopping more this year at supermarket chain Aldi, where many groceries are cheaper, he said. But longer drives and higher gas prices have eaten away at some of the savings. They’ve also cut out brand-name cereals, rice, oatmeal, ketchup and mustard.

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“I’m making more money. I should be able to see it,” said Mr. Sutton. “But I don’t see it because I’m paying more for stuff now.”

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complete Consumer prices rose 5.3% in August The Labor Department said a year earlier, a slightly slower pace than in June and July but still close to a 13-year high.

That means that for the lowest-earning level of workers, “real” wages—wages adjusted for inflation—fell 0.5% in August from a year earlier, according to data from the Atlanta Fed and the Labor Department. This is in contrast to the 2.1% annual increase in the two years before the pandemic.

The combination of strong wage gains and high inflation reflects the unusual nature of current economic recovery. state reopening, vaccination And fiscal stimulus Until recent weeks there had been a powerful surge in demand, particularly for in-person services such as food and travel, which for most of the pandemic left consumers and skewed toward low-paying jobs.

Companies could not hire fast enough and raised wages to attract workers and retain what they had. employees in generally low-paying jobs As such the biggest salary gains occurred in restaurants, airports and hotels. Annual wage growth for the 25% lowest-earning workers was running at 4.8% in August, according to the Federal Reserve Bank of Atlanta. This was the highest rate of growth since 2002, and peaked slightly above 4.7% in the months before the pandemic, when unemployment was at a historically low 3.5%. Comparatively, annual wage growth for the highest-earning workers stood at 2.8% in August.

At the same time, the spending storm was hit by pandemic-related shortages and bottlenecks, which pushed up the prices of many goods and services this summer. For example, the shortage of semiconductors for new vehicles, Rapidly hiked prices for used and rental vehicles. Supply-chain issues have persisted, putting pressure on prices.

This pressure on workers’ real incomes remains or reverses. Depends on the path of both wages and prices. Most economists expect inflation to reverse somewhat, as supply-chain disruptions ease and demand spurts and reopens cool off at its pace.

Economists Surveyed by The Wall Street Journal In July it was projected that inflation would be 4.1% at the end of 2021, cooling down to 2.5% in 2022 and 2.45% in 2023. This would still leave inflation well above the 1.8% average annual inflation rate recorded in the previous decade. Epidemic.

bargaining power

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But economists also expect factors that have fueled low-end wages over the past year in the form of school closures, fears of Covid-19 and federal income support – all of which have kept people out of the workforce. played some role in

Josh Bivens, research director at the Economic Policy Institute, a left-wing think tank, said that as the labor shortage eases, workers will lose some bargaining power. “In the long run, I don’t see how that source of clout is viable,” he said. “People need to work to live, and that goes double for low-wage families.”

Diane Swonk, chief economist at accounting firm Grant Thornton, said a future COVID-19 outbreak could impact wage benefits for low-wage workers, as disruptions from the delta variant have already occurred. Hiring slowed in August, Labor Department data showed, in part due to restaurants and stores cutting staff.

So even if inflation moderates, as expected, cooling wage growth means that real incomes for lower-class workers may not grow as fast.

Low-wage workers are doing better than workers overall in terms of wage increases: According to data from the Atlanta Fed, the wages of all workers — including low-wage workers — fell 1.8% in the year through August, adjusted for inflation. Labour Department. But it assumes that all workers face the same inflation rate. In fact, economists say that low-income households spend disproportionately more on many items whose prices have risen the most, and thus effectively face higher inflation rates.

“Low-income households are being hit hard by high food prices, high energy prices, high shelter costs,” said Richard F. Moody, chief economist at Regions Financial Corp. It’s taking up a huge chunk of their budget, so it’s leaving them with a lot of low discretionary income as opposed to high-income families.”

Historically, spending on certain household needs has made up a substantial portion of the budget of low-wage households. According to an analysis by Labor Department economists Anya Stockberger and Josh Klick, prices for several categories that make up the bulk of their budgets—such as rent, energy, beef and eggs—increased more than the overall CPI between 2003 and 2018. As a result, this research indicates that the annual inflation experienced by the lowest-earning quartile was 0.3% higher than in the top-earning quartile.

The Department of Labor doesn’t have a comparable analysis for the past two years. Groceries, gas and rent accounted for a larger share of spending in low-income households than in high-income households, according to the Labor Department’s last survey of consumer spending conducted between mid-2019 and mid-2020.

During that period, the prices of all these commodities increased sharply, although not all of them increased more than the prices as a whole, as the survey showed. Families earning less than $40,000 a year spent an average of 9.8% of their budget on groceries, compared to 7.1% for high-income households budgeted.

Grocery prices have risen at a 4.3% annual pace since February 2020, the fastest increase since 2012, according to Labor Department data. Low-income households spend proportionately more on groceries such as fish, poultry, meat and eggs, an increase of 8.1 annually. % during that time. Although overall grocery prices have climbed at a steady rate during the pandemic, some foods have risen even more in recent months. For example, sliced ​​bacon was selling for about $7.10 a pound in August, up more than $1 since March.

Low-income households also spend proportionately more on petrol. Its price is notoriously volatile, often influenced by OPEC production and other supply factors related to US economic conditions. Gasoline prices declined at the start of the pandemic, but have more than rebounded since then. As of August, they had grown at an annual rate of 11.1% from February 2020, data from the Labor Department showed. According to the US Energy Information Administration, prices have been climbing steadily and stood at $3.26 a gallon in early September, the highest in seven years.

Rent is also a major concern. Lower-income households, on average, spend a much larger portion of their budget on rent than higher-income households, and relatively more of that on rent. From June to August, rent grew at an annual rate of 2.8%, according to Labor Department data. This measure lags behind the latest developments in the market.

Rents tracked by Zillow, an online real-estate company, rose 9.2% in July from a year earlier, as demand increased among those who can’t afford to buy a home and some young professionals returning to cities. Returns. Zillow estimates that typical US fares were 2.9% higher in July than if rents followed their pre-pandemic trend.

‘scraping by’

Han Park, 27, of Norcross, Ga., serves sandwiches and cleanups as an assistant manager at Jimmy Johns. The fast-food joint raised her salary this summer to $14 an hour, she says, her second wage increase since January, when she earned $11 an hour. But the rent for her shared two-bedroom apartment was 6.5% higher this summer than in December, she said, offsetting some of her salary benefits. “I still earn enough to pay my rent, pay my bills and groceries, but really nothing else,” Ms Park said. “I’m still kind of scraping by.”

Many low-income Americans entered the pandemic in an economically precarious position, with little cushion of savings to absorb rising prices. According to a Federal Reserve survey conducted in October 2019, nearly three in 10 adults were either unable to pay their monthly bills or had a minor financial setback from falling behind in payments. Federal stimulus helped make up for it: Between stimulus checks and enhanced unemployment benefits, according to the JPMorgan Chase Institute, low-income households saw their cash balances rise sharply during the pandemic.

However, extended unemployment benefits expired in early September, and the federal government has not disbursed household stimulus checks since the spring. With limited means to cover high prices, low-income households may have to cut spending if prices continue to rise rapidly.

Grant Thornton’s Ms Swonk said the pandemic-driven disruptions are increasing the burden of transportation costs for many low-income workers. Leisure and hospitality jobs have moved away from urban centers with public transport infrastructure and moved to vacation hubs or suburban areas. Employment in that sector was down 36.5% from July’s pre-pandemic levels in New York and 22.5% in Chicago, compared to 10% nationwide.

To return to work, some of those workers will have to buy vehicles and spend more on gasoline, Ms Swonk said. This comes at a time when prices for used cars are 31.9% higher than a year ago and gasoline is about 60 cents more per gallon than in January 2020.

In addition, low-income workers are employed in occupations that require face-to-face contact, and thus are much less likely to work remotely during the pandemic than high-income earners, which are fueled by gas prices. are able to cut commuting costs as increased.

Rebecca Reitnauer, age 37, works as a barista starbucks – Licensed store at Sacramento International Airport, 30 to 40 minute journey from their home in Citrus Heights, Calif. He said it used to cost $45 for a tankful of gas, but now it costs more than $80.

He and his partner – who also works at the airport – are considering moving in with Ms. Reitnauer’s mother, a 10-minute car ride from the airport, to reduce their transportation costs. After more than doubling their electricity bills earlier this year, the move will also rein in the cost of electricity.

“It’s really tough,” said Ms. Ritnauer. “You start feeling like you’re drowning and you’re like, ‘What are you going to do?’ “

To read more from The Wall Street Journal, Click here.

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