In a survey by the National Association of Business Economists, a strong majority of all businesses – fully 58% – reported that they raised the wages they paid to employees in the third quarter, as reported by AXIOS. Nearly the same number say they will raise wages yet again in the coming months. While the news has some positive elements, especially for workers (like the smiling employees above), it definitely has some economists worried.
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According to the NABE report, much of what is driving rising wages includes a rebounding economy that continues to exhibit strong demand. Also, businesses are continuing to hire with more openings than employees – contributing to the pressure to raise wages.
While economic growth is obviously good, and rising wages can also contribute to increased consumer spending, there is no question that these quick wage increases awaken the fear of inflation. Economists had expected a momentary bump in inflation as the economy shifted from sedentary during COVID-19 last year to powering back to a healthier economic life.
This Unwanted Guest is Overstaying Its Welcome
However, like a visiting guest who overstays their welcome, that initial inflation bump has not subsided within the growing economy as expected…it’s hanging on to an unnerving degree. This was not what economists expected, and this new report on rising labor wages only serves to add to their concerns.
Overall, the government’s data shows that the average weekly earnings have increased a robust 4.5% over the same period last year. And in a breakdown by business sector, those sectors most in need of workers have seen the biggest increase in wages – as businesses seek to attract candidates. For example, construction pay has jumped fully 7.1%, while leisure and hospitality are up an impressive 11.2%.
More Job Openings than Job Hunters
In a remarkable twist not normally seen in past economic disruptions, starting in May, the data began to show that the number of available jobs outstripped the number of job hunters. And, as Axios put it, this undoubtedly means that “…wages are bound to continue to rise as employers compete even harder for labor.”
I just heard the distinctive sound of thousands of economists shuddering.
Almost half (47%) of the NABE survey respondents said that they are facing a shortage of skilled labor. This result is up sharply from the same report just a quarter earlier, when 32% reported a skilled labor shortage.