Economists: Wage growth remains strong but can’t match inflation
SANDY, Utah — The good news is that the upward pressure on wages is expected to continue for a while, the bad news is that the pay increases aren’t enough to match inflation, according to economists with Wells Fargo.
“Elevated wages are here to stay,” said a special commentary by the team of economists.
The economists said their modeling shows that the probability for high wage growth over the next four quarters has reached a new high.
“Upward pressure on wages remains strong,” the report said.
Wells Fargo senior economist Mark Vitner told KSL-TV that certain sectors are seeing more upward pressure on wages, like hospitality, childcare, and household services.
“Wages in those industries are rising much faster because those industries still haven’t been able to hire back all the workers they lost during the pandemic—the rest of the economy has,” he said.
The general manager for Ruby’s Inn at the entrance to Bryce Canyon National Park said his industry is especially vulnerable to inflation, worker shortages, and upward pressure on wages.
“Almost everybody in the service industry or the tourism industry there’s a ‘help wanted’ sign in the window,” Lance Syrett said.
To retain employees and help his staff cover higher costs of living, Syrett said they’ve increased compensation considerably.
“We had to raise all of our staff 25% to 30% wages just to keep them,” he said.
At the same time, price increases are eating up profit at the family business, Syrett said. They are paying more for propane, materials, and food.
“When you come and stay at our resort we include breakfast with every room,” he explained. “Well, that breakfast has gone up almost 100% over COVID. I mean, it is just crazy.”
Even though paychecks are growing, Vitner said households are still getting squeezed by higher prices.
“It’s a good thing that we’ve seen healthy wage growth,” Vitner said. “I don’t know that the levels that we’re seeing now are sustainable. And even though we’re seeing very large increases in wages they’re really not keeping up with inflation and unfortunately there’s no way to do that without setting off a wage/price spiral.”
Vitner said wage increases of even 10% can’t keep pace with housing, food, and energy costs that are up about 20% year-to-year.
“While the likelihood of ‘high wage’ growth in the next year is elevated, some signs of a slowdown in labor costs have emerged,” the report goes on to say.
“The restrictive monetary policy environment is likely to push the economy into a clear recession by early 2023,” the report concludes. “We expect wage growth to slow back toward its pre-COVID trend as the unemployment rate heads higher over the course of next year.”
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