Workers got larger raises last year. Those hikes still might not keep pace with inflation
People who got raises last year might not see their paychecks stretch much further.
That's because those increases in pay are up against the worst inflation in 40 years.
Employers struggling to retain talent amid the so-called Great Resignation anticipated giving out larger pay increases and bonuses in 2021. More than half of workers received a raise last year, according to a Joblist survey of more than 2,700 employees in the U.S.
Nearly 60% of those that got raises saw a bump of less than 5%, according to the survey. Another 27% saw a 5% to 10% increase last year. Only 16% got a raise of 10% or more.
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However, the prices of goods and services has gone up faster, which means that the earning power of most workers has been eroded. In December, inflation surged at the fastest annual rate since 1982, rising 7% on the year, according to data from the U.S. Bureau of Labor Statistics.
"Inflation is something that [workers] should be cognizant of when they're evaluating current pay at their company, evaluating potential raises and considering other options," said Kevin Harrington, CEO of Joblist.
Of course, the headline inflation numbers don't mean that all consumers are being hit with prices that are 7% higher across the board — instead, the government measures a basket of goods and services to gauge rising cost.
In December, certain things drove most of the yearly gains in inflation. Gasoline was nearly 50% more expensive than it was 12 months ago, and energy services, including electricity and piped gas, were up more than 10%. The prices of used cars and trucks have increased more than 37% on the year, but new vehicles are up nearly 12% as well.
Rising prices for vehicles won't impact consumers who don't drive or aren't in the market for a new car, so overall they might see more moderate inflation personally. Still, most Americans will be hit by rising costs in at least one area: The price of food, both at home and out, has increased more than 6%. Housing costs have also risen more than 4%, which for many, makes up their largest monthly expense.
What can be done
Inflation, pay and the state of the labor market at this point in the pandemic have caused millions to leave their jobs. Some of them are doing so to make more money and offset some of the rising costs they're seeing.
"It's unnerving for people to see things that they're used to buying in their monthly budget and see that go up and feel like it's something they don't have much control over," said Craig Birk, a certified financial planner and chief investment officer at Personal Capital.
Nearly 79% of workers said they thought they could make more money by switching jobs, according to the Joblist survey. Another study from Personal Capital found that 77% of those considering leaving their current jobs are doing so to find better pay at another company.
"Job switching is often a way to achieve an even bigger pay increase," said Harrington, adding that workers should consider their options now if they're looking for higher pay.
If inflation continues to run hot, that could mean those raises are further eroded. To keep rising prices in check, the Federal Reserve will likely raise interest rates this year, with the first bump potentially coming as soon as March.
Still, it's possible that employees will continue to see higher raises through 2022. This year, companies are planning to give an average 3.4% raise to workers, according to a survey from Willis Towers Watson.
Employees are optimistic, as well, even if they aren't looking to move to different job. More than half of workers said they'd expect a raise in 2022 if they stay with the same company, according to the Joblist survey.
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