Inflation Takes Toll: 60% of Americans Report Their Income Does Not Keep Up With Rising Prices in a Cooling Job Market

The U.S. job market, once sizzling hot, is showing signs of cooling off as the Federal Reserve takes steps to temper the country’s economic growth. However, amid this shift, American workers continue to hold onto their bargaining power, at least for the time being.

A recent Bankrate survey reveals that approximately 64 percent of employed Americans experienced a pay increase in the 12 months following October 2022. This includes 38 percent who received a pay raise, 16 percent who found better-paying jobs, and 10 percent who enjoyed both benefits. These figures represent an increase from the previous year’s survey when 61 percent reported pay increases, even during a more robust hiring period.

However, the progress American workers have made in their careers is being overshadowed by a concerning trend. A larger percentage of workers in 2023 (60 percent) compared to 2022 (55 percent) report that their incomes have failed to keep pace with rising household expenses due to inflation. Even among those who received pay raises or secured better-paying jobs, more than half (53 percent) stated that their earnings were losing ground to inflation, up from 50 percent in the previous year.

 

 

The impact of inflation is evident, with less than one-third (29 percent) of all employed Americans indicating that their pay has managed to match or exceed the rate of inflation this year, a decrease from 33 percent in 2022. Even among workers who received pay increases, a smaller proportion (36 percent in 2023 versus 39 percent in 2022) claimed that their incomes had outpaced inflation.

A notable portion of American workers (72 percent) who did not see pay increases reported that their incomes had failed to keep up with the rising cost of living, exacerbating their financial challenges.

Despite a seemingly improved inflation picture on paper, with inflation rates dropping to 3.2 percent annually in October from a peak of 9.1 percent in June 2022, the effects of inflation are still felt by many. The median salary in the U.S. stands at approximately $40,260, and a 5 percent raise would translate to a modest $2,013 extra per year. However, prices have risen by almost 17 percent since February 2021, when inflation began to surge, making it a challenge for workers to fully catch up to their loss of purchasing power. It may take until the fourth quarter of 2024 for workers to fully recover.

The survey also revealed disparities among different demographic groups. White workers were more likely to receive pay raises (50 percent) compared to Black (45 percent) and Hispanic (44 percent) workers. However, Black (35 percent) and Hispanic (32 percent) workers were more likely to find better-paying jobs, indicating an increase from the previous year. Generation Z workers (aged 18 to 26) were three times more likely than Gen Xers (aged 43-58) and seven times more likely than baby boomers (aged 59-77) to report finding better-paying jobs.

The impact of inflation varied among income groups, with higher earners being the least affected. For workers earning $100,000 or more annually, 57 percent reported receiving pay raises, while those earning less than $50,000 were more likely to report stagnant incomes. Hourly workers also faced greater challenges, with 66 percent reporting income losses due to inflation compared to 54 percent of salaried workers.

 

 

Despite concerns about inflation, performance-based raises remained more common than cost-of-living adjustments. Performance-based adjustments accounted for 35 percent of pay raises, while cost-of-living adjustments made up 31 percent. This highlights the significance of inflation’s impact on consumer sentiment and household finances, particularly in a period of elevated inflation levels.

While the labor market retains some of its strength, signs of a slowdown are beginning to emerge, with job creation slowing and wage gains moderating. Economists anticipate further joblessness in the coming years, with unemployment expected to rise to 4.5 percent by September 2024.

The overall sentiment is that while the American job market remains resilient in the face of inflation and economic shifts, workers are grappling with the challenges posed by rising prices and income disparities. As the economy continues to evolve, the ability of workers to maintain their bargaining power and economic stability will be closely monitored.