Wages are increasing, but why?

Wages and salaries have been on the rise all year, with many employers citing rising inflation as a factor.

According to a Conference Board survey previewed by the WSJ yesterday, companies may be ready to fatten up paychecks for the first time in over a decade. They're budgeting 3.9% of next year's overall payroll for raises, according to the survey. So, 2022 could be the year you finally make that splurge purchase.

That's a solid indicator that salaries will continue to increase in the new year, as they have all 2021:

  • Hourly compensation in the private sector increased 4.8 percent in January, surpassing 4 percent for the fifth month in a row, according to the Labor Department on Friday.
  • Wages and benefits grew at a faster rate in the third quarter of this year than ever before.

Why now? Employers are paying more in order to recruit and retain the best and brightest due to the ongoing labor scarcity. In addition, owing to rising costs of living, almost four-in-ten businesses said they took inflation into account when deciding to raise pay.

Be aware of the "wage-price spiral," which may occur when businesses respond to inflation by raising pay. When firms raise wages to combat rising prices, they are often compelled to increase costs on customers, resulting in even greater inflation.

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