How Inflation Impacts Wages

According to the Bureau of Labor Statistics (BLS), rising inflation is a significant factor in the ongoing saga of wage negotiations.

Americans are experiencing the most profound wage growth in years, according to Business Insider; average hourly earnings were up 4.7% in October alone. However, rising prices could quickly outpace wage growth.

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Though the demand for labor is high, salary negotiations are still tricky for various reasons, such as workers feeling abandoned by their unions, underestimating inflation effects, and more. Additionally, the federal minimum wage requirements have increased by only $1.55 in the last ten years, showing that wage rates are not especially concordant with the economy at large. Inflation has rested at 5% over the past 18 months, and some experts say it could get higher as the Federal Reserve attempts to prevent a recession.

Though salary negotiations are complex, they're certainly not impossible. Unsatisfactory pay contributed significantly to the wave of workers who quit during the Great Resignation. The ongoing labor shortage heavily favors workers' autonomy and has benefited job seekers – unemployment rates are at a 50-year low, and there are more than 10 million job openings, which is significantly higher than average. This gives workers more power in negotiations, as they know their labor is valued more in this economic landscape than in the past.

Some experts are surprised that wages haven't risen even more in light of inflation. This would contribute to a self-perpetuating cycle of continually rising wages and inflation, a phenomenon known as a "wage-price spiral."

However, EPI Economist Elise Gould tells Business Insider this kind of spiral is unlikely. And as long as unemployment is low and job openings are high as inflation decreases, she says, workers' leverage for pay negotiations will stay solid. But if job losses were to occur, companies would have the negotiating power to lower wages regardless of the state of inflation.