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Wage Increase Slows, Federal Reserve Remains Alert

Business, Featured

Federal Reserve Service | Image by Triff / Shutterstock

The labor force has seen an immense increase in wages over the past year. According to The Wall Street Journal, March continued to see a modest 0.4% increase, but on a lesser scale than the previous six months, which saw a 0.5% increase. February was an anomaly compared to the previous pattern, showing a rise of 0.1%. This is welcome news to the Federal Reserve.

Labor shortages across the country have forced companies and business owners to double down and offer increased wages in order to obtain or retain workers. This increase in wages has been a strong contributing factor to the current state of inflation. As workers bring home higher wages, more and more purchases are being made. Currently, the supply cannot keep up with the demand. Jerome Powell, Federal Reserve chairman, stated that such a tight labor market is unhealthy and that slowing the demand is necessary to bringing inflation down.

Wages could show signs of slowing down due to less pressure on corporations to fill positions as more people return to work. In March, 62.4% of adults were either working or actively looking for a job. This brings the overall percentage to its highest level since March 2020. However, we have yet to reach pre-pandemic levels.

An increase in new hires is also a positive sign of a stimulated labor market. According to a report from the United States Labor Department, this past year, an increase in new hires accounted for 4.4% of the labor market, a 0.5% increase from pre-COVID levels.

Americans’ return to the workforce could be due to several contributing factors: the end of stimulus packages and pandemic-related benefits, a return to in-person schooling, and the reopening of childcare centers, to name a few.

While wages overall are higher than in the previous year, some industries are experiencing exponential wage growth.

The construction industry saw a 6.2% increase in wages, the most significant increase in four decades. The transportation and warehouse industry’s 11.1% increase marks its most effective since record-keeping began in 1973.

According to The New York Times, wage gains held a steady pace throughout the 2010s, averaging a 2% to 3% increase annually.

While American workers welcome the 5.6% increase, it is unlikely that the full force of a wage increase will be felt.

Inflation has reached a 40 year high, and the Federal Reserve shows no sign of letting up. Federal officials began raising interest rates in March and further increases are expected in May and June. This will make borrowing money for housing, student loans, or credit cards more expensive.

Despite enthusiasm for a strong work market, the Federal Reserve is working to ensure that the growth pace does not cause an upheaval in the economy. Though wages increases have slowed, it is unknown if it will be enough to fend off continued inflation and wage-price standoff.

The Biden administration has shown support for increased wages for American workers, stating that now more than ever, American workers have the power to obtain better wages. Though he mentioned that some find issues with the wage increase, he does not.

Because inflation is a significant concern, the Biden administration is attempting to soften the blow by opening strategic oil reserves and increasing the amount of seasonal foreign workers. However, as wages increase, the typical working household may not be able to negate the effects of inflation.

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