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Many workers who recently changed jobs saw their new paycheck increases outpace inflation by a wide margin, by nearly 10% or more, according to a new study from the Pew Research Center.
The typical American who changed employers in the year from April 2021 to March 2022 saw a 9.7% increase in their “real” salary over the previous year. according to to Pew, a nonpartisan research organization, which analyzed federal labor data.
“Real” wages measure the change in a worker’s pay after taking into account inflation, which was at an all-time high in June. highest level in over 40 years.
The figure cited by Pew represents the median, meaning that half of the workers who changed jobs got a net pay increase of 9.7% or more. The other half of those who changed jobs saw a smaller net raise or saw their net earnings decline.
Workers have been leaving their jobs at high rates since the beginning of 2021 in a trend known as the Great Renunciation. Demand for workers soared as the US economy largely reopened from its pandemic-era hibernation, prompting businesses to compete by raising wages.
Workers who changed jobs reaped more financial benefits than those who stayed with their employer, Pew found. According to the study, the average worker who stayed in the same job from April 2021 to March 2022 saw their income fall by 1.7% after taking into account inflation.
The dynamic of higher wage growth for job changers relative to other workers was typical even before the covid pandemicBut it’s likely to be stronger in today’s job market given how quickly wages are rising, according to Daniel Zhao, senior economist at job site Glassdoor.
“Workers have more leverage when they go out and change jobs and find another employer willing to reset their wages to market level,” Zhao said.
Employers don’t have as much incentive to give big raises to employees who stay in their current roles, because it implies a willingness to stay at their current salary, Zhao said. And employers generally give raises only once a year; someone who finds a new job essentially gets an extra raise, she said.
A restaurant in Arlington, Virginia was hiring as of June 3, 2022.
Olivier Douliéry | AFP | fake images
However, US Department of Labor data released on Tuesday suggests a slowdown in the labor market is underway, meaning workers’ bargaining power could also decline.
Vacancies, a gauge of employer demand for workers, fell to 10.7 million in June, down about 605,000 from May, the agency reported. It was the third straight month of declines since March, when there were nearly 11.9 million job openings, a record, meaning there may be fewer opportunities to land a new job.
The Federal Reserve is raising borrowing costs in a bid to cool the economy and the job market to rein in stubbornly high inflation. While it usually takes time for monetary policy to work its way into certain sectors of the economy, employers may be backing off hiring plans in anticipation of a slowdown, Zhao said.
“It seems that the power of the workers during the last two years was probably stronger at the end of last year or the beginning of this year,” Zhao said. “If the labor market continues to cool, we should also expect worker power to cool.”
Despite this relative cooling, the labor market still appears to be tilted in favor of workers. Job openings remain very high from historical levels despite the significant drop in June. Layoffs are also down, meaning employers are holding on to their existing workers.
The level of voluntary departures (resignations), another barometer of worker power, fell slightly from May to June, although, like the level of vacancies, it remains high by historical standards. However, outflows in two sectors (finance and real estate) fell back to pre-pandemic levels in June, suggesting that the Great Resignation in those industries has come to an end, Zhao said.
“At this point in the labor market recovery, a decline in job openings is not a concern,” according to Nick Bunker, an economist at Job Site Indeed. “A pullback in hiring intentions in the absence of a significant decline in actual hiring is a sign of a cooling labor market, but not one where the temperature is plummeting.
“The labor market is still hot,” he added. “Continuous slow cooling would be more than manageable.”