Stay for Pay? Companies Offer Big Raises to Retain Workers

Accelerating wage growth has contributed to historically high inflation, as some firms have passed on price increases to offset rising labor costs. Prices will rise in 2022 at the fastest pace he has seen in 40 years. Inflation has eased in recent months, but remains high. The Federal Reserve is watching wage growth closely because it believes future rate hikes will slow the economy and keep inflation down.

Employees who changed companies, jobs or occupations saw an even bigger wage increase of 7.7% year-on-year in November. The prospect that employees may leave for bigger salaries is a major reason companies are increasing wages for existing employees.

However, many workers do not see wage increases. Wages for all private sector workers fell by 1.9% in the 12 months to November, according to the Labor Department.

Rightcast senior economist Layla O’Kane said workers in sectors such as leisure and hospitality will find it easier to find higher paying jobs, making career changes more attractive.

“If I can see Burger King across the street offering $22 an hour and I’m making $20 an hour at Dunkin’ Donuts where I work, it’s pretty clear what my opportunity cost is. “Employers have responded to that by saying, ‘Well, we’re going to raise wages internally because we don’t want to lose the staff we’ve already trained.'”

As the economy recovers from the pandemic, the bargaining power of employees has increased, and some workers are likely to ask their current employers for a pay hike, O’Kane added.

Alexandria Carter, a claims specialist and accountant for an insurance company in Baltimore, was promoted in early 2022 and received a small raise. After the year-end performance review, she was able to reward her progress with an additional 7% raise. Her boss told her about her plans to keep her moving up in her company.

This was in contrast to some of the jobs she had held before.

“They said I was good in my position, and I got it,” she said. To be noticed and rewarded, that’s great.”

There are signs that wage gains are starting to ease as the tight labor market eases a bit. Average hourly wages rose 5.1% year-on-year in November, slowing from a recent peak of 5.6% in March. Many analysts expect wage growth to slow further in the coming months.

In industries with high demand for workers, “companies are preparing for wage increases to match inflation,” said Paul McDonald, senior executive director at staffing firm Robert Half. “As inflation falls, it will come more in line with wage growth.”

The Consumer Price Index, which measures how much consumers pay for goods and services, rose 7.1% in November from 7.7% in October. This pace builds on the moderate upward trend in prices since June’s peak of 9.1%.

Still, pressure on wages is likely to persist in a competitive job market where poaching remains common. 4 out of 10 workers will leave their jobs for a 10% pay raise.

The famous toastery, a chain of breakfast, brunch and lunch restaurants based in Charlotte, North Carolina, is raising wages faster than ever before, said company president Mike Sebasco. Across his eight locations owned by the company, existing kitchen staff wages are up about 15% year-over-year.

“I didn’t want to be easily poached,” he said. It’s unusual for a manager from another company to come to a famous toastery dumpster and say to a breakfast chain employee, “Hey, come work for me. I’ll give you an extra $2 an hour.” It doesn’t matter, says Sebasco. He said.

to help cover In response to rising labor costs, Famous Toastery increased prices in August on menu items such as a Western-style omelet made with ham, roasted peppers, caramelized onions and American cheese.

“Bacon eggs and many produce go up and down, but you can get through it,” Sebasco said. “I’ve never really seen an increase in the workforce like this.”

Heading into 2023, many firms in the Boston Federal Reserve District cite labor costs as a greater source of inflationary pressure than other types of costs, according to Central Bank Business Anecdotes Beige. According to the book

Lauren Mason, senior principal at consulting firm Mercer, said most business owners believe they can pass higher wages on to consumers in the form of higher prices. “This makes it easier to absorb some investment in rewards,” she said.

Wage and price increases can interact. In fact, rising inflation has caused some workers to demand higher costs of living, which has contributed to higher wages for workers, economists say.

More broadly, wages are rising for both those who stay and those who switch jobs because companies cannot find enough workers. Across the economy, he had 10.3 million job openings in October, well ahead of the 6.1 million unemployed Americans looking for work that month.

Companies use performance-based pay increases to retain employees and minimize potential productivity losses from recruiting and training new employees. According to Mercer’s survey of more than 1,000 companies, companies are budgeting more performance-based compensation in his 2023 than in the past 15 years.

Daniel Powers, a recent college graduate, received a 10% raise at the end of the year after starting out with a six-figure salary when he was hired in September at a management consulting firm in Chicago.

“They understand the reality of the market. There is no false illusion that ‘we are family here,'” Powers said of running his company.

Please write to Gabriel T. Rubin ([email protected]) and Sarah Chaney Cambon ([email protected]).