$15 an hour isn't enough. Job seekers want at least $20, making inflation fight harder
- Calls were strong last year to move the minimum wage up to $15 per hour.
- But now, job searches show people are increasingly looking for $20 an hour.
- This could end up fueling inflation and giving the Fed a big headache in its inflation fight.
Remember the fight for a $15 minimum wage when President Joe Biden entered office? That’s so passé.
For the past year, a larger share of people have been searching for $20-an-hour jobs, not $15, according to an Indeed Hiring Lab report. As of Aug. 14, the share of searches for a $20 hourly wage has grown 35.5% year over year, compared to a 57.3% decline in searches for $15, it said.
Job search information can be a window into how the labor market has changed over time. Just as searches on occupation or preferred location can indicate strong sectors or regions, wage searches can provide insight into wage expectations, which factor into inflation.
And the wage search change “illustrates a shift in job seekers’ search behavior,” said AnnElizabeth Konkel, Indeed Hiring Lab economist. “Wage gains and inflation are likely influencing job seekers’ expectations toward higher dollar amounts.”
August jobs report:315,000 jobs added despite recession fears. Unemployment rises to 3.7%.
How have job searches shown the path of wages?
Throughout 2019 and much of 2020, the share of searches on Indeed mentioning “$15” was greater than those mentioning “$20,” Konkel said. But that trend reversed in April 2021, when the share of $20-related searches started to outpace $15.
Further, searches for “$25” are also on the rise. While still smaller than those for $20, the share of $25-related searches has increased 122% year-over-year, the report said. Since mid-June, the share of searches for $25 has outstripped the $15-related searches, too, it said.
What’s causing the shift to higher wages?
Wage gains and inflation.
Not adjusted for inflation, annual wages among hourly workers rose 5.9% in July, outpacing the 5.1% increase for non-hourly workers, emboldening some to ask for more money.
“Once job seekers know it’s possible to attain a higher wage, their expectations may shift and act as a pull factor in searching for a higher dollar amount,” Konkel said.
PAY RAISE POSSIBILITIES:You can still nab that raise despite inflation. How companies can still afford benefits.
Then, there’s inflation.
“Every worker is talking about CPI (consumer price index),” said Jesse Wheeler, economic analyst at decision intelligence firm Morning Consult.
The index, a measure of consumer inflation, rose 8.5% in the 12 months to July, off the scorching 9.1% pace in June but still near a 40-year high. That has wiped out hourly wage gains this year. In July, inflation-adjusted average hourly earnings decreased 3% year over year.
“This may be a push factor for job seekers to increase their wage expectations while job searching,” Konkel said.
What does this mean for inflation?
Some economists fear higher wages will fuel inflation. When workers lose purchasing power due to high inflation, they demand higher wages. That causes firms to raise prices and the loop starts again, causing the “wage-price spiral.”
Jason Furman, former chair of President Barack Obama’s Council of Economic Advisers, warned in August of a wage-price spiral brewing, noting widespread price pressures as well as increasing short-term inflation expectations.
INFLATION OR RECESSION?:Is soaring inflation worse than the recession the Fed may trigger by aggressively fighting it?
In June, a New York Federal Reserve survey showed the one-year median inflation outlook rose to 6.8%, the highest since the series began in June 2013.
But that same survey showed expectations eased in July to 6.2% and the three-year outlook to 3.2% from 3.6% in June.
“Wages are up this year because of inflation, but expectations are this won’t remain the case,” Wheeler said. “So, the mindset that inflation won’t stay high will prevent falling into the wage-price spiral for now.”
Would higher wages complicate the Fed’s inflation fight?
Higher wages might force the Fed to keep raising rates to make borrowing more expensive, which discourages spending and cools the economy and inflation.
The Fed’s already increased its short-term benchmark fed funds target this year to 2%-2.25% from near zero, with the last two supersized at 75 basis points each. Fed Chair Jerome Powell also warned last week more hikes are coming and will “bring some pain to households and businesses.”
Former Treasury Secretary Lawrence Summers expects a lot of pain. He’s said unemployment will have to rise to at least 5%, from 3.5%, and stay there for years before inflation subsides.
Furman said the Fed needs to push its benchmark rate above 5% to get inflation down to less than a 4% annual rate.
Others are more optimistic. Though 81% of chief executives are preparing for a recession in the next 12-18 months, they expect it to be brief, The Conference Board’s third-quarter survey of CEO confidence in mid-August showed.
“Three-quarters of CEOs say demand has risen or held steady over the past three months, while a majority said they intend to continue expanding their workforce and increasing wages,” said Dana Peterson, chief economist of The Conference Board.
Either way, any recession – mild or not – can feel painful. “Reducing inflation is not a painless exercise,” said Joe Carson, former chief economist at Alliance Bernstein.
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at email@example.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.