Employers expect largest hike in wage increase budgets in 13 years

Overall wage growth dramatically accelerated during the past six to eight months.

Employers faced with extensive departures of experienced workers will raise wages faster for current employees to maintain an effective workforce.(Photo: Shutterstock)

Employers expect to dedicate an additional 4% for wage increases in 2022. This would be the highest increase since 2008, according to the November Conference Board Salary Increase Budget Survey.

Here are the key findings:

Overall wage growth dramatically accelerated during the past six to eight months. This increase is especially strong for workers under the age of 25 and for people who switched jobs in the past year. This suggests that much of the wage acceleration has been among workers who recently were hired.

The faster wage growth of new hires has led to pay compression, which is when wage premiums for work experience shrinks. When more experienced workers feel that their pay advantage no longer is significant, they may seek new jobs in the tight labor market, which leads to high turnover of experienced workers. Employers faced with extensive departures of experienced workers will raise wages faster for current employees to maintain an effective workforce.

Inflation also is a factor. Between February and October, the Consumer Price Index increased by a 7.8% annual rate, the highest since 1982. Nearly four in 10 respondents said the increase in inflation played a factor in their salary increase budget estimated for 2022. “It is likely that severe labor shortages will continue through 2022,” the survey report concluded. “During that time, overall wage growth is likely to remain well above 4%. Wages for new hires and workers in blue-collar and manual services jobs will grow faster than average. At the same time, there are no signs of inflation slowing down, and it may remain elevated in the coming months, increasing the need for cost-of-living adjustments. “In this environment, the upward momentum for salary increase budgets is likely to continue into early 2022.” ###

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