The laws of physics hold that what comes up must come down. At the moment, wages appear to be exempt from the rule.
Before the pandemic was significantly affecting the U.S., in February 2020, Americans earned $28.51 an hour on average. But last month, Americans earned nearly 10% more an hour on average ($31.51) compared to February 2020.
That’s the highest hourly wages have ever been, according to Bureau of Labor Statistics data.
What’s more: In just nine months wages rose by more than 4% alone.
These wage gains come as inflation is at the highest level in nearly 40 years, and as a record 4.5 million Americans quit their jobs in November. There are 10.6 million job openings in the U.S. and 6.3 million people who are unemployed, according to BLS data.
Are wages only going to continue to go up from here?
Probably, but not for much longer, said Diana Furchtgott-Roth, who served as the chief economist at the Department of Labor from 2003 to 2005.
“At some point it will hit an inflection point, but not yet,” Furchtgott-Roth, who now teaches at George Washington University, said.
That point will be either “when the labor force participation rises, or when the economy goes into a recession, reducing the demand for workers,” she told MarketWatch.
Currently, the labor force participation rate, a measure of the share of people working or looking for a job, is 61.9%. That’s the same level it was in November and 1.5 percentage points lower than before the pandemic.
But if that rate doesn’t increase — meaning employers are still scrambling to hire new workers — “there is no reason why wage growth would have to roll over soon,” said Stephen Stanley, chief economist at Amherst Pierpont, a New York-based fixed income securities brokerage firm, said.
“Plus, the longer inflation is a problem, the more likely that workers will demand higher nominal wages to offset price hikes,” he added. (Nominal wages are what workers see on their paychecks, they aren’t adjusted for inflation.)
On the flip side, if the pool of candidates looking for work increases, wages for low-paid jobs “will eventually get pulled down,” said Elise Gould, an economist at the Economic Policy Institute, a liberal-leaning think-tank.