Despite historically high raises that brought hourly wages to a record peak of $31.31, American workers still lost money last year due to price increases for commodities like food and gas, and even services. In reality, according to the Bureau of Labor Statistics (BLS), the massive pay hikes turned into a 2.4 percent pay cut for the average employee in the private sector.
With an average 14 percent increase, only the leisure and hospitality industry was able to beat the seven percent hike in prices based on the 2021 Consumer Price Index.
This is the largest pay hike in a 12-month span of any industry as per BLS records. Average raises in 13 other industries tracked failed to cope with inflation. Professional and business services, which included a diverse range of professions such as accountants, lawyers and architects, collectively saw an average of 6.2 increase and $37.91 hourly wage. Workers in transportation and retail trade industries also saw above-average gains of around five percent.
Overall, the wage gains are well above average, according to economists. This is due to how tight the labor market has become as more workers opted to retire and working parents chose to exit the workforce or cut their hours to care for young children at home. Others also opted to forgo certain roles due to concerns related to the Wuhan coronavirus (COVID-19) pandemic.
Greg McBride, the chief financial analyst for Bankrate, noted that despite 2021 being the best year for wage growth, it still ended up as a loss for many households as "their expenses increased even faster and chewed up all of the benefits of whatever pay raise they had seen."
Employers pull out all the stops to attract workers
Julia Pollak, chief economist at online employment marketplace ZipRecruiter, said that employers are now pulling out all the stops to attract workers. "Historically, we've seen 2.4 unemployed people per job opening at any one time on average, but now it is 0.6 unemployed people per opening. Businesses are fighting a war for talent," she said.
The high demand for labor has pushed businesses to offer higher pay, with the lower-wage workers posting the biggest pay raises. The leisure and hospitality industry, which usually has the lowest hourly wages among the sectors tracked by the BLS, now offers its non-management workers bigger raises than managers, hitting nearly 16 percent.
There are plenty of factors that contributed to these wage changes for leisure and hospitality workers, but the most prominent was the pandemic, which afforded them more choices as their roles became much less pleasant. (Related: Why inflation is at a 12-year high.)
With the stimulus checks, increased unemployment benefits, monthly child tax credit payments and other government aid offered the past two years, many lower-wage workers were able to amass a savings cushion that gave them some breathing room to look for better opportunities, according to the director of research for the EPI, Josh Bivens.
Workers chose to pass on jobs in the leisure and hospitality sector or demanded more money as conditions worsened and the industry became less profitable due to capacity caps.
"These public-facing jobs came with health risks as well as nuisance factors, like restricting the number of people entering a restaurant, enforcing mask mandates and increasing sanitization," Pollak said, adding that cases of assault and abuse also increased, which is why many are rethinking taking these jobs. (Related: Supply shortages drive inflation to record levels.)
Because of the high turnover rate, businesses offered more attractive salary packages to find workers.
Wages jumped so high last year due to the growing $15 minimum wage movement. With big companies providing a wage floor above the federal rate of $7.25 an hour, other businesses moved to raise pay to compete for staff as well.
While the average pay at the lower end of the employment market has outpaced inflation, it still does not mean that the jobs are paying a living wage. "Headlines about rising wages for frontline workers – even rising real wages – often obscure the reality that wage levels are still low. In today’s inflationary environment, even as wages rise, so does the minimal threshold for an acceptable wage level," an analysis from Brookings Institution stated.
Looking ahead, economists expect wages to continue to rise, although at a slower rate than they did last year. Whether or not it will be enough to top inflation remains to be seen.
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