The labor market is as tight as ever, and employers are pulling out all the stops to get workers in the door by offering signing bonuses and higher pay.
"We have seen no indication that these wage increases will slow down," says Rucha Vankudre, a senior economist at Emsi Burning Glass, a labor market analytics firm. "What else can [employers] do? We'll have to see. They've done the things we've expected them to do at increasing rates, but what's next?"
Everyone has their eye on whether big raises will continue, adds Emsi Burning Glass senior economist Ron Hetrick: "There is absolutely no hope of being done with them."
Job-switchers are seeing the biggest raises
Companies are banking on attracting new hires by openly advertising their pay. There are four times as many job postings that list their pay compared to 2016, with much of the growth happening in the last two years alone, according to Emsi Burning Glass.
It's working to an extent: 47.4 million Americans quit a job in 2021 during the Great Resignation, shattering the record of when 42.1 million people quit in 2019 (at the time considered the tightest labor market on record).
One August 2021 poll from PwC found 65% of workers were looking for a new job at the time, with their top motivation being to negotiate for a higher salary, followed by expanded benefits and the flexibility to work from home.
Paychecks are being eaten by inflation
But while wages rose 4.7% in December from a year prior, according to the Labor Department, workers' paychecks are being eaten up by rising inflation. Consumer prices reached a 40-year high in December, when the consumer price index (which measures the cost of goods and services) showed a 7% jump year-over-year.
A lot of factors contribute to inflation, like rising costs of labor and materials, and when demand outpaces supply. Hetrick says that when businesses give raises to in-demand workers like in food service, retail and manufacturing jobs, they're going to pass on labor costs to the consumer. "So, inflation is never going to be solved until we get this kind of supply and demand equation more settled," he says.
As inflation weakens consumers' buying power, Federal Reserve Chairman Jerome Powell has indicated that an interest rate hike is almost certain in 2022. This would increase the cost of borrowing, which would encourage consumers to spend less, and have a "cooling" effect on the economy.
Raises alone can't fix the talent shortage
More money alone won't solve the problem of workers being in short supply.
There are nearly two open jobs for every person looking for one, according to the Labor Department's latest Job Openings and Labor Turnover report. Roughly 6.3 million people were hired into new jobs in December, out of a total of 10.9 million job openings, leaving 4.6 million roles unfilled.
"The main problem is that increased wages are not getting people who are out of the labor force back in, just paying people who are already working more," Hetrick says. "That's causing a disruptive musical chairs game of resignations and hiring."
The overall unemployment rate dropped to 3.9% in December but spiked for Black workers, rising to 7.1% from 6.5%. This can be attributed to both job losses (Black workers disproportionately hold jobs vulnerable to pandemic conditions) and labor force entries (where Black workers re-enter the workforce but continue to face discrimination in hiring).
And there were still 2.9 million fewer people in the workforce compared with February 2020 before the pandemic hit the U.S.
Throughout the pandemic many workers, especially women and caregivers, have been unable to rejoin the labor force due to ongoing child-care challenges and health concerns over the virus. Advocates and legislators have called for a more targeted approach to get people back into the workforce, especially through more flexible work options like paid sick leave, telework arrangements, non-traditional hours and caregiving backup.
Sign up now: Get smarter about your money and career with our weekly newsletter