Labor shortages have forced employers to make the most significant increases in 20 years

Labor shortages have forced employers to make the most significant increases in 20 years.

Almost ubiquitous "help needed" signs are helping to drive up costs for employers nationwide.

The USA has more than 10 million job openings that companies are looking to fill, and many of these companies hope to attract workers with higher wages. It adds up.

THE FRIDAY, the US Labor Cost Index revealed that employer compensation costs for all civilian workers, including workers' wages and benefits, jumped 4% year-over-year during the last quarter of 2021. This is the most significant increase in more than 20 years.

During the fourth quarter, compensation costs for the private sector trended higher - up 4.5% from the previous twelve months.

These are just averages. Some companies, including Wall Street firms, are already saying that increased compensation costs reduce their bottom line.

"We will continue to see robust wage growth this year. It is not going away," Eric Lund, the Conference Board's chief economist, told Fortune. He said he expects wages and salaries to continue to rise through at least January and February 2022.

Workers' wages were already on the rise before the pandemic, as companies struggled to hire enough workers -- particularly in blue-collar industries. Many retailers and fast-food chains, for example, were raising their minimum wage. But when the pandemic spread and consumer demand skyrocketed, employers ramped up wage increases, pandemic overtime, and login bonuses.

However, whether wages will continue to grow depends on how the pandemic takes shape. With the number of new COVID-19 cases below 100,000 as of Sunday - down from a record 1.4 million cases earlier in January - Lund says the US is likely to come out of a "very rough patch."

If the workload continues to slow, it could attract those with health concerns to the labor market and help increase the number of workers taking jobs. Recent market volatility may also help keep workers at their desks or even push some of those who have retired to get at least part-time work to bolster their investment portfolio in light of recent declines. That could help stem more dramatic wage increases.

But while wages have risen sharply, Lund and other economists believe labor costs have not yet played a significant role in the sharp inflation the US experienced in 2021.

"I don't think it was the main driver of inflation in 2021. A lot of people point to wages and say, 'Look, it's driving inflation.'" "There are a lot of other things that happened last year that was responsible," Lund says, adding that supply chain bottlenecks and ongoing worker absences due to COVID have limited the supply of goods.

Usually, when wages rise, it can increase prices because goods are more expensive to produce and workers have a more expendable income, and therefore demand also grows.

"I don't think we're in a wage-wage price spiral just yet — although it's not very far," Lund says, adding that he is somewhat concerned about core inflation, which does not include the more volatile food and energy categories, heading higher over the three months.

If this continues, inflation could become more entrenched in the US economy rather than simply a reversal of pandemic-related issues in the short term.

The Fed hopes to calm consumer demand and slow inflation by raising interest rates. Last year, the Fed indicated that the US could be on track for three smaller rate hikes in 2022, but Lunde says he expects them to be closer to four or five.

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