US wage gains are being erased by inflation

Say goodbye to 99 cent pizza.
Say goodbye to 99 cent pizza.
Image: Reuters/Carlo Allegri
We may earn a commission from links on this page.

US workers saw a pay bump in November, as average hourly earnings rose by nearly 5% from the previous year, according to a Bureau of Labor Statistics report released today (Dec. 10). But higher inflation is wiping out those gains, eroding consumers’ purchasing power and leaving them in a worse economic position than prior to the pandemic.

On the month, US average hourly earnings for private employees rose to $31.03 from $30.95 in October, a 0.3% increase. But the average price of consumer goods rose by 0.8%, wiping out these earnings gains. Adjusted for inflation, hourly earnings decreased by 0.4% last month after dropping by 0.6% in October. Overall real hourly average earnings, an indicator of consumers’ purchasing power, decreased by 1.9% last month from November 2020.

Soaring wages followed by historically high inflation

US wages soared during the first months of the pandemic, but this wasn’t necessarily a sign of a healthy economy. About 35% of the lowest-earning workers lost their jobs between February and April 2020, while the highest-earning workers kept working, so earnings calculated by the Bureau of Labor Statistics jumped.

Average earnings calmed down somewhat in the ensuing months, but have been ticking up steadily since last June. Over the past year, many employers have raised wages in an effort to entice applicants; there were a record 10.9 million available jobs in the US in September. But that’s not necessarily helping workers, since they now have to pay higher prices for almost everything.

October’s Consumer Price Index report showed that everyday items like food, rent, and gas, are becoming more expensive in the US, and goods like used cars—which remain particularly expensive due to pandemic-related supply chain issues—are no longer the only items driving up inflation. Those trends persisted in November.

As Americans’ buying power has declined, so has consumer confidence: this index, which looks at consumers’ assessment of current business and labor market conditions, declined to a nine-month low in November as income prospects dropped.

There was one bright spot in this latest inflation report, though. The lowest-paid US workers are seeing wage gains keep pace with inflation. Employees in the leisure and hospitality industry, for example, saw earnings rise by 0.8% on average last month, the same increase as consumer prices.