As the U.S. economy continues to grapple with the effects of the pandemic, American workers’ salary expectations for new job opportunities have climbed to their highest level since March 2014, according to data from the New York Federal Reserve. The lowest annual wage that respondents would accept for a new job has consistently risen, touching $78,645 in July, up from $72,873 in the same month in 2022 and $62,194 in July 2019, prior to the pandemic. This significant year-on-year increase was particularly noticeable among respondents over the age of 45, with men expecting an average of $91,048 compared to women’s average expectation of $66,068.
The issue of wage growth has been a central concern in the Federal Reserve’s ongoing battle against inflation. In June, Fed Chairman Jerome Powell highlighted the crucial role of controlling wage inflation in achieving the central bank’s 2% inflation target. Despite this, there remains a significant gap between the $78,645 annual salary that workers hope to earn when switching jobs and the actual average of $69,475 received over the past four months. This disparity, however, does not negate the fact that employees are faring better than the $60,764 they earned on average a year ago.
American Job Seekers Demand Higher Salaries Amidst Inflation Concerns
According to the New York Federal Reserve, American job seekers’ salary expectations for a new job have reached their highest level since March 2014. The minimum annual wage applicants would accept for a new job rose to $78,645, up from $72,873 in 2022 and $62,194 in July 2019, pre-pandemic. This increase was most prominent among respondents aged over 45, with men expecting an average of $91,048 compared to women’s $66,068.
Wage and Inflation: A Delicate Balance
Wages have been a key focus in the Federal Reserve’s battle against inflation. In June, Fed Chairman Jerome Powell emphasized the importance of controlling wage inflation to achieve their 2% inflation goal. However, July’s consumer price index stood at 3.2%, a rise from 3% in June.
Wage Expectations vs Reality
There is a noticeable disparity between the desired $78,645 annual salary and the average $69,475 received over the past four months. Despite this, employees’ earnings have significantly improved from the $60,764 average a year ago.
The Wage-Price Spiral: A Threat to Stability?
Rising wages can lead to inflation. Businesses grappling with higher labor costs often pass on these expenses to consumers by raising prices. This, in turn, leads workers to demand higher wages to maintain their spending power, triggering what economists refer to as the "wage-price spiral". However, Powell reassures that wages will continue to rise, but at a rate consistent with 2% inflation over time.
The Labor Market’s Response
The NY Fed data indicates potential cooling in the labor market. The proportion of job seekers in the previous four weeks dropped to 19.4% from 24.7% a year ago. The likelihood of switching jobs also fell slightly to 10.6% from 11%. Moreover, expectations of receiving a new job offer dropped to 18.7% from 21.1% last year, and the average expected likelihood of receiving multiple job offers in the next four months fell to 20.6% from 25.7%.
The rising wage expectations among American job seekers highlight the increasing pressure on employers to offer competitive salaries amidst an uncertain economic climate. The Federal Reserve’s challenge lies in managing this wage growth without fueling inflation beyond its target. Furthermore, the slight cooling in the labor market could indicate a shift in job seekers’ confidence or a response to changing economic conditions. As the situation unfolds, both employers and job seekers should monitor these trends closely.