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Wage growth continues to be strong and is accelerating further. The Employment Cost Index for Q2 2022 shows that wages and salaries for private industry workers increased by 5.8 percent at a 2-quarter annualized rate, up from 4.9 percent in in the previous 2-quarters. Wages and Inflation continue to rise and momentum has not stopped. Wages have not grown this fast since the mid-1980s and this is a big uptick compared to a year ago when wages increased 4.3 percent at a 2-quarter annualized rate. Labor shortages are the main reason for strong pay increases. Additionally, fast growth in prices and wages feed into each other. Wide differences in wage growth exist across jobs. Wages for manual services workers (e.g., food services, cleaning, personal care, healthcare support) grew at 8.1 percent at a 2-quarter annualized rate, much faster than 5.0 percent for management and professional workers (e.g., computer, engineering, science, legal, finance) (See Chart). While labor markets are tight across the entire economy, labor shortages are especially severe for manual labor and manual services workers. While wage growth is still strong today, in 2023 pay increases could possibly decelerate. Amid strong inflation and Fed interest rate hikes, the economy is expected to slow over the coming months and possibly enter a short and mild recession by the end of this year and into early 2023. Even though so far, the labor market has been rapidly adding new jobs to the economy (on average 375,000 over the last 3 months), we expect the labor market to cool in reaction to slowing economic activity. As a result, employers would be hiring less which would then result in diminished recruitment challenges and reduced pay increases. Commentary on today’s U.S. Bureau of Labor Statistics Employment Cost Index
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Charts
Wage inequality continues downward trend in quarter 2 of 2023
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Recent hikes in quits rates indicate retention difficulties across all industries, but have nearly approached pre-pandemic levels
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Decline in office and administrative support work suggests certain tasks and skills have been replaced by automation
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CEOs are having trouble filling positions as the unemployment rate drops lower
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Non-union wages are growing faster than union wages
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This index identifies the risk of future labor shortages for specific occupations.
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Labor shortages and the tightening of labor markets have led companies to lower education requirements when recruiting.
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The rapid rise in job openings to historic highs coupled with increasingly more workers quitting is leading to severe labor shortages, especially in leisure & hospita…
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There has been a large increase in the share of office job ads that mention remote work since before the pandemic.
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