Americans just got their biggest raise in 17 years. Too bad inflation canceled the whole thing out.

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A Starbucks barista makes coffee in Florida.
Starbucks is one of many companies that has raised wages in recent months.

  • Worker compensation skyrocketed in the third quarter, with year-over-year growth unseen since 2004.
  • But price inflation is running even hotter, and it’s eating into those bigger paychecks.
  • Labor shortages and supply chain snafus are colliding, and it could leave workers behind.

If you got a raise recently, look again – prices have been rising so much that you may not actually have any extra cash these days.

Americans this summer saw their biggest raises in 17 years, but inflation is still taking a huge bite out of everyone’s paychecks.

The Bureau of Labor Statistics’ quarterly Employment Compensation Index report, which provides one of the most comprehensive measures of how salaries, wages, and benefits are changing over time, showed a whopping 1.3% increase in total compensation in the third quarter. On a year-over-year basis, compensation was up 3.7% over the third quarter of 2020, the fastest annual growth rate since 2004:

The economy has been facing a labor shortage since the beginnings of mass vaccinations early this year, as businesses have rushed to restaff and reopen after pandemic closures in 2020. Businesses across the economy, especially in the hard-hit leisure and hospitality sector, have been offering significant wage increases to attract new workers. Many businesses have offered sign-on bonuses to new employees, but their effectiveness has been pretty limited.

While the wage increases have been impressive, rising prices have chipped away at Americans’ incomes. Inflation has been running even hotter than wage growth over the last six months:

This shows the tension between some of the different imbalances in the post-COVID economy right now. On the one hand, labor shortages, especially in traditionally low-wage sectors, have led to a big uptick in pay. On the other, supply shortages of all kinds have been driving up prices of goods and services across the board.

While the current inflationary moment is likely to cool off over the next few months as supply chain snarls are worked out, big wage increases won’t do workers a ton of good if they’re immediately negated by higher prices. Former Obama economic advisor Jason Furman pointed out on Twitter that inflation running higher than wage growth means that real wages are below their pre-pandemic trend:

Real wage growth is a crucial factor in making sure everyone benefits from the economic recovery. If inflation is less transitory than expected, that could be a big problem for workers, even as their paychecks get larger.

Read the original article on Business Insider

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