The post-pandemic labor market is in a unique period. Today, there are a record 9.3 million job openings, leaving employers struggling to staff their companies and satisfy the resurgence in consumer demand. This has pushed businesses to raise hourly wages, offer better compensation packages, and even pay applicants to come for an interview to attract swimmers in the talent pool. But while the pendulum has shifted in favor of employees, it is a double-edged sword: Inflation is eating away at those fatter paychecks. Indeed, it is another hiccup in the nation’s economic recovery, creating a no-win situation for millions of Americans who have endured COVID and the state over the last 18 months.
The Employment Cost Index
The Employment Cost Index, a gauge of overall employee compensation, tumbled in the second quarter and is now 2% below the pre-crisis level, with wages and salaries also expanding at a faster pace than benefits. Although compensation surged at a seasonally adjusted 2.8% during the April-June period, the consumer price index (CPI) ballooned at an annualized rate of 5.4%. Put simply, the rising cost of living is canceling out the gain in earnings.
Everything in the marketplace is becoming more expensive. Food prices are soaring, a gallon of gasoline costs more, and the cost of shelter itself continues to imbibe a greater share of household income. This is in addition to surging tuition, automobiles, and a diverse array of consumer goods. If the skyrocketing producer price index (PPI) and the University of Michigan’s cratering consumer sentiment are also factored into the broader view of the economy, short- to medium-term
“The hot economy is heating prices more than it is heating wages,” said Jason Furman, an economics professor at Harvard University, in an interview with CNN.
Is More Bidenflation Ahead?
White House Press Secretary Jen Psaki recently claimed that the current administration had “long anticipated” higher inflation. However, based on the remarks of President Joe Biden and Treasury Secretary Janet Yellen, nobody in 1600 Pennsylvania Avenue expected the CPI, the PPI, or the personal consumption expenditures (PCE) price index to spike as much as they have. In March, for example, Yellen said at a Wall Street Journal event: “I don’t think there’s going to be an inflationary problem.” She has now conceded that red-hot inflation could be a fixture of the economy for another year.
Even the Federal Reserve had dismissed rising inflation only until recently. The leadership at the Eccles Building has ostensibly evolved on the issue: venturing from inflation not existing to growing costs being transitory. Others, such as St. Louis Fed Bank President James Bullard and Kansas City Fed Chief Esther George, now think it is time to begin trimming the institution’s $120-billion-a-month quantitative easing (QE) program in response to the escalating inflationary picture and rebounding economy.
But, if nothing changes at the monetary or fiscal level, will higher price inflation persist? President Biden has become so desperate to curb energy prices that he is pleading with the Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+, to ramp up output and flood the global crude markets with more oil. The cartel has frozen production for a little more than a year, but as the international marketplace normalizes, the group is beginning to restart operations. With festering demand fears, energy commodities could slip into a surplus, allowing prices to ease and preventing motorists from paying more at the pump.
What’s Next for the Job Market?
The U.S. job market is coming across a myriad of hurdles to overcome: personnel shortages, climbing prices, the spread of the Delta and Lambda variants, and sweetened federal benefits. Another concern is the type of job creation occurring in the United States. The July jobs report was sizzling, but the main problem was that most of the new 943,000 employment gains were restaurant and government jobs. Plus, is it job creation if the economy is recuperating the lost hospitality and leisure positions from before the coronavirus pandemic? At present, workers are in the driver’s seat and steering the economic rebound, but inflation in the rear-view mirror is closer than they may think.