If your raise this year was less than 7.1%, it didn't keep up with inflation — and you effectively got a pay cut

If your raise this year was less than 7.1%, it didn't keep up with inflation — and you effectively got a pay cut
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  • Wages have been going up this year, but so have prices — and prices are growing faster.
  • Skyrocketing inflation has meant that a pay raise of 7.1% or below is essentially a pay cut.

Inflation means that you're getting less bang for your buck, and your employer likely isn't making up the difference.

It's the time of year when annual raises come in, but if you didn't see a pay hike of at least 7.1%, you're effectively making less.

That's because the Consumer Price Index, which measures inflation, rose that much this November from the same time last year, cooling from the record rates it saw over the past year but still remaining high. The Personal Consumption Expenditures index, which tracks how much Americans spend on things, is 5.5% higher than last November.

Companies are still forking over more money for salaries, according to the Bureau of Labor Statistics' Employer Cost Index, with compensation costs increasing by 5% from September 2021 to September 2022. But that translated to wages and salaries growing by 5.1% year-over-year as of September, which still isn't enough to offset inflation.

Wages rising by about 5% in the past year have been pretty consistent across economic data; BLS's report on employment in November found that average hourly earnings from November 2021 to November 2022 increased by 5.1%.


That's not enough to outpace inflation: Real average hourly earnings have fallen by 1.9% from November 2021 to November 2022, reflecting how purchasing power is being eaten up by rising prices.

Together, the data illustrates that while workers are seeing numbers on their paychecks that were higher than last year, they're not actually able to afford more stuff given rising prices across the wider economy. It's why a tight labor market and a still-robust economy feels bad for many.

Even if inflation is set to cool in coming months, lagging wages still hurt

In a Bankrate.com survey of 2,458 adults from this summer, 55% of workers said that their incomes have not kept up with rising household expenses amid persistent high inflation.

Companies are desperate for workers, and it's true that they're giving historic raises to compete with the demand. But many workers haven't seen their real wages outpace inflation since 2021, even as they have more bargaining power than they've seen in decades. Those in the leisure and hospitality industry are the only ones who have been enjoying a bump in pay on average after adjusting for inflation, Bureau of Labor Statistics data shows, and it was the same case for 2021.

"While it's been a boon for Americans' wallets, those gains are doing little to offset rising consumer prices," the Bankrate.com researchers said.


Even though raises in their current state aren't giving workers comfortable boosts, employees having bargaining power and an upper-hand means that their jobs are probably safe in a recession, which is looking likely next year.

"If there are 100 chairs and 50 workers, workers are cool, man!" Julia Pollak, the chief economist at ZipRecruiter, told Insider in October, likening the labor market to a game of musical chairs. "All the way down to 51, things are still fine. There's a tipping point at which suddenly it's not that much of a game anymore, and job seekers are a bit more desperate to take the first job that's out there."

Even as tech layoffs at companies like Facebook and Amazon dominate headlines, most Americans aren't in danger. That's because workers are still in demand, as companies try to make up for the labor shortage caused by restrictive immigration policies and early retirement among older workers. That's especially true for fields like healthcare, teaching, and social services, vocations which are suffering especially from the labor shortage.