Workers are changing jobs, raking in big pay increases — and keeping inflation high

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About 64% of job changers said their current job offered more salary than their previous job. According to a ZipRecruiter survey provided exclusively to The Wall Street Journal, nearly half of these workers received a raise of 11% or more. Almost 9% are now earning at least 50% more.

Elevated rates of job rotation may continue: Of prime-age workers aged 25 to 54, around 20% expect to leave within a year, while another 26% said they plan to stay for a year or two, the survey found. Historically, an average job takes four years, said Julia Pollak, chief economist at ZipRecruiter.

Job rotation is a key driver of broader wage growth that emerged as the economy recovered from the Covid-19 pandemic. Workers who change jobs often demand bigger wage increases, and employers also raise wages to compete to keep existing workers, economists say. Annual wage growth for the typical worker averaged 6% over three months in March, according to the Federal Reserve Bank of Atlanta’s wage tracker. That’s up from 3.4% a year ago and above the 3.7% rate in February 2020, before the pandemic, when the unemployment rate was at a 50-year low.

The CPI rose 8.5% year on year in March, the strongest annual rate of inflation since 1981, according to the Labor Department. Broadening wage gains across the economy could keep inflation high in the coming quarters, even if dynamics such as supply chain disruptions and an energy crisis return.

“It’s great to get wage increases, but not if it’s driving up inflation further,” said Diane Swonk, chief economist at Grant Thornton.

Nearly 27% of economists polled by the Wall Street Journal in April said wage growth is the top inflation risk this year, a higher proportion than those who cited either the Russia-Ukraine war and supply chain disruptions as the top inflation risks. Firms pay more to attract and retain workers in a competitive job market, and must pass on price increases to compensate, the reasoning goes.

The momentum poses a challenge for the Federal Reserve, which began raising interest rates in March for the first time since 2018. The central bank is trying to bring inflation closer to its 2% target from a four-decade high.

Wage growth was weak in the years following the 2007-09 recession, even as unemployment fell to historically low levels. Some economists argued this was because workers were reluctant to change jobs. Today, workers are quitting at rates well above pre-pandemic rates and receiving large pay increases.

That includes employees like 37-year-old Dain Laguna.

Mr. Laguna worked a human resources job at a home improvement company last year and felt undervalued at $19 an hour. Rising inflation began to weigh on his already tight budget. For example, the prices of fresh, organic food, which he prefers to feed his children, became a financial drain.

“I still don’t overflow my cup, but I don’t feel like I’m drowning anymore either,” says Dain Laguna, who works from his home in Lexington, NC


Photo:

Kate Medley for the Wall Street Journal

“I’m a father of two and I can’t work for pennies,” said Mr. Laguna. “Things are expensive these days.”

Higher costs and a lack of career advancement mobility prompted him to revamp his LinkedIn profile and apply for jobs last fall. He was given a new position in human resources, which he started in February. In his new job, Mr. Laguna helps onboard workers into IT jobs at large corporations. Recruiters still turn to Mr. Laguna to gauge his interest in new jobs because HR professionals are now in high demand, the Lexington, NC resident said.

Mr. Laguna makes the equivalent of about $28 an hour, or about 50% more than his previous position. “My cup still doesn’t overflow, but I don’t feel like I’m drowning anymore either,” he said. “I’m making enough money now, if a random $250 auto repair bill pops up, that’s fine; that’s not an issue. I don’t have to go into debt.”

About 2.9% of workers quit their jobs in February – well above the 2.3% rate before the pandemic in February 2020 as workers feel confident in their job prospects. The majority of workers who quit last year and haven’t retired say they work full-time or part-time, a Pew Research Center survey released in March found.

The so-called churn rate appears to be peaking, a possible sign that the labor market is cooling off slightly. However, rising layoffs lag behind wage increases, so even if there is a plateau in the coming months, wages can continue to rise for a while, said Alex Domash, a research fellow at Harvard University.

“But even at current levels, wage growth is inconsistent with the Fed’s inflation target,” Mr Domash said, adding that the current rate implies sustained inflation above 5%.

ZipRecruiter’s February survey was conducted among 2,064 US citizens who had started a new job within the past six months and does not necessarily reflect overall job market dynamics. There is no direct historical comparison data. However, the data offer a picture of workers’ bargaining power that could be expanding.

“Companies facing stiff competition for scarce talent have been prompted to raise wages, relax job requirements, expand benefits and offer more favorable employment conditions,” Ms Pollak said. According to a ZipRecruiter survey, about 37% of new hires were recruited by their employer and nearly 22% said they received contract awards.

According to a separate monthly survey by ZipRecruiter, the proportion of jobseekers who expect their current employer to face a higher salary if they are fired rose to 54% in March from 43% in January.

Annual wage growth for the typical job changer was 7.1% in March, averaged over three months, up from 4% a year earlier and the fastest pace since records began in 1997, Atlanta Fed data showed. This wage pressure spills over into everyone else as employers compete to retain employees. Wage growth for those who stayed in work rose 5.3% in March, almost the fastest since at least 1997.

“The moment an employer is afraid of employees leaving, they will grant raises to everyone,” said Guy Berger, chief economist at LinkedIn, the professional social network. “Even though the job retention rate is lower, it’s still up a ton.”

write to Gwynn Guilford at [email protected] and Sarah Chaney Cambon at [email protected]

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