Wage gains for US workers last year were the strongest in decades. It wasn't enough to keep pace with inflation.
The data showed inflation getting even hotter in December. The prices of consumer goods and services went up by 7 percent year-over-year, faster than the 6.8% pace seen the month prior. The pace reflects the fastest year-over-year price surge in nearly four decades and adds to a months-long streak of elevated inflation.
Wage growth was historically strong last year. Businesses were forced to increase pay as they scrambled to rehire. Workers enjoyed some of the biggest raises they've seen in decades, but for most, they still left 2021, with less buying power than they had at the beginning of the year
Insider calculated that real wages in the leisure and hospitality sector grew through last year. After accounting for soaring prices, the group got a huge pay hike in 2021. Hotels and restaurants were the hardest hit by the Pandemic. Firms have raised wages to make sure they are adequately staffed for the return of in-person service as the sector has struggled to get workers back into the fold.
The second-strongest growth in real wages was seen in professional and business services. Inflation-adjusted pay fell in the sector. Warehousing and transportation had a real-wage contraction of 0.9%.
The labor shortage did little to boost pay as other sectors faced massive year-over-year declines in real wages. The information sector saw real pay fall by 4.3%, more than any other sector, although the industry did see a pickup in real wages in December. The manufacturing sector dropped 2.5%, followed by a 3.1% contraction in mining and logging.
The plunge in real wages shows that the labor shortage has improved worker compensation. The increased demand from employers was seen as a boon for workers. President Joe Biden applauded the trend as a new "bargaining chip" for employees in June, saying businesses can solve the worker shortage if they simply pay them more. The shift was characterized by the National Economic Council as a "great upgrade" by the deputy director.
After accounting for soaring prices, the unusual shift hasn't been enough to benefit most workers. The labor shortage will linger after inflation starts to cool. Millions of people are still waiting to rejoin the workforce despite the flat labor force participation in December. The US hasn't seen a strong labor force participation recovery yet, and it's unclear how long it will take for worker supply to swing higher, Federal Reserve Chair Powell said in December.
December's sky-high price growth could be the peak of inflation. The world's supply-chain mess will be solved by a sharp bounce-back in global industry. In recent weeks, the Fed has increased its efforts to control inflation. The Biden administration, the Fed, and Wall Street banks all expect price growth to cool by the middle of the next decade.
There's still hope that lagging sectors' real wages will catch up. It will take extraordinary wage growth for workers to feel like they've beaten inflation.
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