How is the junior
Chipmunk meeting, dear? It was good. Why would you need a fly? Wow. With beef at $0.68 a
pound. I can't blame. A show that takes place
in the fifties. Already in the eighties
when it aired, drawing attention to high
inflationary prices. Could you even imagine
thinking $0.68 a pound was a lot? The average
price in the United States per pound for
beef is now about $5.30. If the cost of everything
keeps going up, it'll wreck the economy and
make life a living hell for American families. Inflation in the US hit a
record high in June 2022. Consumer prices soared
by 9.1% compared to a year prior, the largest
annual increase since 1981. While wages are
rising, they're not keeping up with
inflation. Wage growth has been consistent
within about four and one half percent inflation
rate. Meanwhile, as of November 2022, inflation
was at 7.1% and Americans are feeling the brunt. Two thirds of workers
say their pay isn't keeping up with these
higher prices. Part of the misconception
is people believe, Oh, if I'm only getting a 4%
salary increase and inflation is 7.7, I'm
getting a pay decrease. That's not true. So what exactly is
happening and why? Why aren't salaries
keeping up with inflation? Inflation measures, how
much more expensive a set of goods and services
has become over a certain period of time, usually
a year. There are a number of
reasons why inflation fluctuates, but at the
heart of it, it's basic economic principles. Supply and demand. More money in people's
hands means increased purchasing power with
more demand for goods and services and supply
remaining, the same prices will go up. The COVID 19 pandemic is
an extreme example, but a good illustration of my
point here. At the onset, the world
shut down. Consumers weren't
spending and instead saving. The government
flooded the market with cash. A national
eviction moratorium, loan payment, pause and other
initiatives put more money in Americans
hands. As restrictions started easing, people
began spending again. But at that point,
companies weren't producing as much due to
supply chain disruptions caused by closed
borders, labor shortages and shipping delays. Money supply growing at
a faster rate than the economy's ability to
produce goods and services causes
inflation this time. Record breaking
inflation. A key inflation. Gauge is sounding alarm
bells and it could have a big impact in grocery
stores, especially the latest UN Global Price
Index shows food costs reached their highest
level in nearly a decade last month, thanks in
part to supply and logistics. Issues as the pandemic
was winding down in February 2022. Russia's invasion of
Ukraine only exacerbated the pressure, raising
commodity prices and increasing supply chain
issues. Just like inflation,
wages are driven by changes in supply and
demand. But for labor, they're
determined by market and demographic factors. So when job
availability, as well as the number of people who
qualify and are looking for a specific job
change, so do wages. Laurie Whisper is a
managing director at Willis Towers. Watson
For more than 35 years, she's helped companies
set their compensation strategies. Pretty much everybody's
compensation philosophy is grounded in the
desire to attract and retain employees by
paying competitively. Organizations look at
what is the cost of labor? What do I have to
pay in a given market for a given skill set or
job? And that's how I'm going
to set my pay rates. They don't look at the
cost of living. Organizations typically
determine salary budgets a few years out, so
making sudden and significant adjustments
in wages is unlikely. Companies like to wait
and see if market conditions will be long
lasting before making those changes. How would
you feel if your boss gave you a raise and
then shortly after cut your salary? Most organizations do
take a relative conservative approach to
looking at base salary increases. Even a one or
a one and a half percent increase can represent
hundreds of millions of dollars for an
organization. They need to be good governors of
those payroll dollars. That's part of how they
run their business. A very important part. Organizations down the
road do not want to be in a position of feeling or
believing or factually overpaying their people. And they don't want to
find themselves in a position where they have
to reduce wages or even worse, cut jobs. Layoffs. You know, just
today, Twitter has half the staff. You see Lyft,
Apple, Amazon. It goes on. Us based employers cut
nearly 34,000 jobs in October 2022. Technology companies
took the lead with about 9600 cuts for a total of
more than 28,000 cuts so far this year, up 162%
from the same period last year. The high tech industry e
commerce has been one of the highest paying
industries in the US. Their salary budgets
last year were higher than anybody else's
meaning. They were giving greater
salary increases than most other industries. So that's a good real
life example of what happens when you
overspend relative to what others are
providing in your competitive labor
markets. We simply haven't seen anything
like this since the 1970s. Record inflation has only
made things worse. Still, organizations
typically don't consider inflation and the cost
of living when determining wages. While economists say
salaries can keep up with inflation, Whisper says
they shouldn't. I know that's going to be
controversial for me to say. As employees, as
people, we get to make choices on what we buy
and how we use our buying power. Companies don't
tell us where to live and what to buy. As a
company, if I looked at the cost of living and
said, okay, I'm just going to take the
national average of inflation and match my
annual salary increase budgets, to that, I'd be
overpaying what the market pays for Almost
every job. That overpayment might
cause me to do some things in the future
that would hurt everybody. Like what we're seeing in
the tech industry. When the salary increase
budgets drop as a result of the economic
downturn, they kind of stick. They're not very
elastic. Inflation goes up and
down quite a lot. Salary increased budgets
don't because they're driven by different
things. What most organizations
do is they compensate workers in other ways
that won't automatically drive all future
earnings up regardless of economic conditions. For example, when many
organizations perform well, they reward their
employees with bonuses. Profits go up and down,
financial performance goes up and down. So
variable pay programs are best suited to reward
for those when we have low inflation and high
salary budgets. Employees benefit, but
at no time in the past when our buying power
was greater than the cost of things we bought, did
we say, Oh, let's lower it because we want to
match that? Employers also have
hidden increases in compensation. The
increase in cost of benefits and attracting
new talent. And some organizations
are seeing their costs go up in different ways. Travel nurse jobs pay
substantially more than what they were getting
paid to work in a hospital. But in a lot
of hospitals around the country, they're seeing
their nurses quit sign up as travel nurses in the
hospitals so short staffed they're hiring
the travel nurses. So it's the exact same
nurse coming back at a higher wage. However, that increase in
salary is offset with no benefits or job
security. Overall, middle income
Americans are feeling the largest impact from
inflation. Higher earning workers
were more likely to say their incomes held up
with the increase in prices. 53% of those
earning $100,000 or more per year, compared to
34% of those earning less than $50,000. The biggest increase in
labor force participation among people with higher
education and among people with less
education like just a high school degree. And as the people in the
middle who have maybe a two year degree where
we've seen the slowest recovery in going back
to work. Typically, lower income
families struggle the most during high
inflationary times. However, in the past
year, on average, low wage workers experienced
real wage growth wage growth after adjusting
for inflation while middle and high wage
workers didn't. On average, wages have
kept up with inflation at the bottom end. But that doesn't mean
that there aren't lots and lots of people where
their wages haven't kept up. Maybe their market
conditions are such that there hasn't been forces
pushing the wages up. Maybe they're in a job
that they just haven't been able to change
because of their circumstances or their
childcare. So what would happen if
salaries did keep up? We want wages to go up. We just want them to go
up at a level that's sustainable and
consistent with 2% inflation. In November 2022, Federal
Reserve Chair Powell said the Fed doesn't want to
see a wage price spiral, rising wages increasing
the demand for goods causing prices to rise. Increasing the demand
for higher wages, which then leads to higher
production costs and more pressure to increase
prices, creating a cycle. And once you see it,
you're in trouble. We get this wage price
spiral where workers want a 5% raise because they
anticipate next year there'll be 5%
inflation. But their action makes it a
self-fulfilling prophecy. We get 5% inflation, so
they do the same thing the next year and we get
sort of stuck at that high inflation rate. The most effective way to
keep wages trailing inflation is by changing
jobs. Those who switch jobs
between April 2021 and March 2022 saw earnings
jump by nearly 10% from a year earlier. Those who
stayed. So we just fall nearly
2%. Another way employees
can see a boost in their earnings is through cost
of living allowances, although those may
disappear if inflation goes down again. There
are also opportunities to negotiate for other
perks like free meals or snacks, child care or
housing assistance, more paid time off student
loan assistance or transportation
reimbursement transfer to a location where the
cost of living is lower or an extended timeline
for remote work. Every organization has a
different philosophy when it comes to
compensation. They create strategic plans, taking
into consideration the industry, competition,
company culture, financial, health and
goals for the future. For some, that means
trying to make sure wages keep up with inflation. But for the most part,
that's just not how it works. And if that's a
problem, it's up to you, the employee, to decide
your next move. Other than treating
people poorly and taking advantage of them, there
is no right philosophy. The whole key with your
compensation philosophy is what are you doing so
that you feel you're doing the right thing
for your organization and for your people. It's always a good idea
when there's lots of opportunities out there
to take a look and see if you might just find
something a little bit better for you. And as for keeping
inflation down, the government and the
Federal Reserve are working on it. Fed
Chairman Powell says the country is battling
inflation head on. The central bank has
raised interest rates and will continue to do so
until inflation is under control. Meanwhile, in
August 2022, President Biden signed the
Inflation Reduction Act of 2022 into law. The spending package is
expected to reduce the deficit by more than
$300 Billion in the next decade. It's not a fix
that will happen overnight, but there's
hope.
