Consumer prices rose 5.3 percent in August compared to the previous year, causing some anxiety as the economy recovers from the pandemic. Food prices at home increased by 3%, while food prices away from home (i.e. restaurants) increased by 4.7 percent, according to the Bureau of Labor Statistics’ latest release this week. Rents and energy prices both increased by roughly 9%.
One point of worry for employers and employees in the United States is that activists frequently exploit inflation data to support their campaign for a $15 minimum wage, or even a higher salary of $23 per hour, despite the fact that study shows such steep rises will destroy millions of jobs.
Remember, if we kept up with inflation, the minimum wage would be $23/hr right now. $15 is a good middle ground. #RaiseTheWagehttps://t.co/44l6Rqln0F
Despite the fact that inflation has risen dramatically in the last year, the so-called “The Fight for $15” is still not based on a consumer price index. If the 2009 federal minimum wage increase to $7.25 per hour were indexed to climb with inflation, it would equal $9.22 today, according to Bureau of Labor Statistics data up to August 2021.
If the minimum wage were to be adjusted to the level in 1990, it would be $7.17 now. No matter how you slice it, these data don’t even come close to, let alone support, the $23 hourly rate proposed by the union-backed One Fair Wage.
Indeed, the $15 minimum wage goal that several states and municipalities have already enacted has no precedence in history. An organizing director for the Service Employees International Union’s Fight for $15 campaign joked about the absence of genuine analysis informing their main policy goal at one meeting, saying: “We decided that $10 was too low and $20 was too much, so we settled on $15.”
Unfortunately, these draconian minimum wage targets, which lack economic justification, will wreak havoc on firms and employees as they try to recover from the pandemic. According to the impartial Congressional Budget Office, the Raise the Wage Act of 2021, which proposes a $15 minimum wage nationwide, may cost the country up to 2.7 million jobs. According to economists from Miami and Trinity Universities’ industry and state-level analyses, the hospitality and restaurant industries would bear the brunt of these effects. Increases above the $15 minimum wage would have an even bigger negative impact on employer costs, and could result in the loss of many more employment.
In 2022, how would the minimum wage be adjusted for inflation?
President Biden stated at his State of the Union address that bringing inflation under control was a primary goal, and he told businesses, “Not your wages, but your costs.” However, many firms across the country have not responded to current health or economic problems by decreasing salaries. And, in certain regions of the country, salaries are only going higher by law, as many municipal minimum wage legislation increase their rates in response to changes in the consumer price index (CPI). We present a projection of what businesses can expect during these difficult economic times, not an economic prognosis, so they can budget appropriately in the coming months and prepare for near-term (July 1) and future (January 1, 2023) necessary wage rate increases.
Running a business has been anything but simple during COVID-19. We’ve all heard about the “Great Resignation” and how it led to “wageflation” ( “According to Forbes, “a sudden, unexpected, and instantaneous surge in pay based on unique market conditions”). With the addition of inflation, some businesses may find themselves in an even more vulnerable position. Although the mid-year minimum wage increases (July 1, 2022) are still four months away, some jurisdictions have already announced their rates; the differences are notable and demonstrate the impact rising inflation can have on wages in jurisdictions that adjust their minimum wage in response to changes in the CPI.
The minimum wage in both the City of Santa Fe and the County of Santa Fe was CPI-adjusted from $12.32 to $12.95 per hour on March 1, 2022, an increase of just over 5%. The minimum wage in the District of Columbia will increase from $15.20 to $16.10 per hour on July 1, 2022, representing a nearly 6% increase. The greatest stated increase to date belongs to the City of Los Angeles, California, where the yearly adjusted minimum wage will rise from $15.00 to $16.04 per hour on July 1, 2022, a nearly 7% increase.
Factors that may impact why minimum wage CPI adjustments varies from one location to another range from the apparent to the obscure, and include, for example:
- The minimum pay rate prior to the change. The higher the existing minimum wage, the more likely there is to be a raise “Sticker Shock” is a rate that has been changed.
- The adjustment’s lookback period, as well as inflation throughout that time. There is a gap between the end of the lookback period and the start of the adjusted wage rate, but depending on how much time passes between these dates and how inflation performs in the interim, the rate bump could exceed inflation at the time the rate goes into effect or throughout the year it is in effect; of course, during the pre-adjustment period, the opposite could be true, with other items like food and consumer goods prices rising while the adjusted wage rate remains in effect; of course, during the pre-adjustment
- Whether CPI-U (Consumers) or CPI-W (Workers) is used in the adjustment (Workers). These are various inflation rates, which helps to explain why two cities with the same pre-adjustment minimum wage may have different adjusted rates.
- The adjustment’s working area. To be competitive, a smaller city can go beyond its borders and apply the CPI index to a much larger metropolis further away.
- Whether or not the law sets a limit on the annual rise. This could happen in general or by employing a different rate of inflation than the actual rate of inflation “whichever is less” standard (i.e., the rate of inflation or X percent, whichever is less).
Numerous further municipal mid-year rate adjustments will occur throughout California on July 1, 2022, so businesses should plan for a potential “wagequake” across the state. However, tremors may not be limited to the West Coast, as municipal minimum wage rates in the Midwest (Illinois) and the Mid-Atlantic (Maryland) will also alter. While concerns about near-term wage changes are primarily local, firms across the country should prepare for the potential that inflation does not moderate sufficiently through 2022, resulting in state-level rate increases on January 1, 2023. (or December 31, 2022, in New York). This could effect both exempt and non-exempt employees if it happens. States frequently add a multiplier to the minimum wage to determine the minimum salary required for the executive, administrative, or professional exemption to apply; a state-law inside sales exemption could face a similar minimum wage multiplication scenario. In addition, the state may annually increase the exemption’s minimum hourly rate for specified hourly professionals (or medical in California).
Although we don’t have a crystal ball to look into the future, we may forecast that things will become more difficult, just like wage and hour regulations.
What would be the minimum wage adjusted for inflation in Canada in 2021?
“In no Ontario municipality does $15 an hour give a livable wage,” the Star editorial board noted in November, with some firms, employees, and advocates claiming the increase is years late and won’t do anything to offset the province’s ever-increasing expenses of doing business.
According to the site’s definition, the living wage is computed based on the needs of a family of four with two parents working full-time throughout the year.
Cost of living: According to a Policy Alternatives research released the same year, the living wage in Charlottetown, PEI in 2020 was $19.30 per hour.
Cost of living: According to the McGill Tribune, campaigners have been lobbying the province to raise the minimum wage to $18 to help with living expenses. Increasing living costs, according to a coalition of anti-poverty advocates, might force employees deeper into poverty.
According to a research by the CRHA, an association that represents human resources professionals, Quebec will see record wage increases this year. According to the report, employers in Quebec might offer employees compensation rises of 2.9 percent on average in 2022, the greatest gain in a decade.
Minimum wage: $11.81 (as of October 1, 2021), with annual inflationary adjustments on October 1st.
Cost of living: Once New Brunswick raises its minimum pay in April, Saskatchewan will have the lowest minimum salary in the country.
According to a report released in March by the Regina Anti-Poverty Ministry, one out of every four Regina children is currently living in poverty.
Minimum wage: $15.20 (as of April 1, 2021), plus an annual inflation adjustment on April 1st.
Cost of living: According to a 2019 assessment by the Yukon Anti Poverty Coalition, Whitehorse’s living wage was $19.07 per hour, owing to increases in the cost of living, child care, and transportation.
To keep up with inflation, how much need wages rise?
Work has gotten worse for many since the outbreak of the epidemic, further aggravating the issue. Due to the high incidence of employees abandoning their jobs, a smaller number of people are shouldering the workload that was formerly carried by a larger number of workers, adding to significant burnout rates. Not to mention the additional hazards posed by the pandemic itself, which include creating more hazardous work situations and adding more labor such as ensuring consumers are wearing masks.
“No one thinks when they sign up to be a cashier that that job will be deadly,” Molly Kinder, a Brookings fellow and the report’s author, told Recode, referring to the dangers that people working in front-line positions at places like grocery stores or pharmacies face if they become infected with the virus. According to Kinder, one Kroger employee she’s been interviewing isn’t sure if a raise will be enough to compensate for the increased stress.
“She’s been harping on the importance of a $15 minimum wage. “Is that additional tiny bit of money worth it when my mental health is suffering, it’s so unsafe, and I’m spending more at the pump?” she asks when she finally understands.
Inflationary pressures on salaries are projected to endure through 2022. According to a new poll of more than 5,000 employers across industries by compensation software business Payscale, 85 percent of employers are concerned that projected salary increases this year, which are already significantly greater than in recent years, will be undermined by inflation.
Fortunately for you, we’re in a once-in-a-generation historical moment where inflation is predicted to decline but labor shortages are not.
“According to David Smith, an economics professor at Pepperdine’s business school, “workers have more bargaining power, which can be a countervailing force to some of the difficulties we’re having,” such as income disparity. “In the long run, that would be beneficial.”
For the time being, those gains are required to keep up with the rising cost of commodities. However, if the price of products moderates, these long-overdue pay increases may have some real-world impact for Americans.
What employers are going to have to do about it
Employers suffer from inflation because they must spend more to keep their employees from looking for greater pay elsewhere. Employers may need to raise wages in line with inflation, provide better perks, or change how they operate in order to retain those workers.
The most basic solution is to raise salaries. In the six years that Payscale has been collecting this data, 44 percent of firms say they plan to provide average raises of 3% or more this year. Fewer than 10% are increasing pay by more than 5%, which is more in line with inflation.
“There are certain companies who simply go out there and say, ‘We have enough wealth, and we can go out and be dominant in salary as a differentiator,'” says one employer. Payscale’s chief people officer, Shelly Holt, stated. “When you look at a middle or smaller company, they might not have the luxury.”
To recruit and keep employees, these businesses will have to rely more heavily on other forms of benefits. This might entail, among other things, greater health care coverage, increased vacation time, and remote job choices. That corresponds to some of the insights gained during the Great Resignation.
“Employees want more than just a good salary. Pay is important, but employees also desire workplace flexibility and the opportunity to live better lives, which is changing how they think about perks and total rewards, according to Holt.
Companies are offering a greater choice of perks this year than they were pre-pandemic, according to Payscale. Prior to the pandemic, only 40% of the organizations polled offered remote work choices; now, 65% do. This year, the number of companies offering mental health and wellness programs increased by 7% to 65 percent. There were also modest increases in the number of businesses that provide four-day workweeks and child care subsidies.
According to Allie Kelly, chief marketing officer of recruiting platform Jobvite, the things that might help set firms apart require a shift in perspective, from treating employees like labor to treating them like people. This necessitates a constant reevaluation of offers in order to keep up with what’s vital to their employees.
“People have various perceptions and understandings of their own self-worth and what matters to them in life. Money is important, but it isn’t enough,” Kelly said, listing perks such as child care, shorter workdays, and more professional growth, as well as lower benefits and income.
While many of these perks may be less expensive than a 7.9% annual raise, they are not free. Companies must decide whether they can or should pass on those expenses to customers, which could worsen inflation, or whether they can simply swallow them as a cost of doing business. According to Erica Groshen, senior economics advisor at Cornell University’s labor school, this could entail opening for fewer hours, producing less overall, or cutting profit margins.
“Right now, and for a long time, we have historically high profit margins,” Groshen remarked. “As a result, it would not be considered a crisis in the past.”
The rising expense of human work is also hastening the transition from wage labor to automation, as has been predicted for some time. Robots, while expensive, do not demand more money and do not become ill during a pandemic.
Employers will replace people with robots to the extent that they can, according to Shivaram Rajgopal, a professor at Columbia University’s business school.
“Now you use a QR code to find the menu,” Rajgopal explained. “The next step is to simply place the order, and it will be delivered to the kitchen. We don’t require as many people to serve us.”
However, for those of us who haven’t yet been replaced by robots, the current employment scenario may work in our favor. That’s because, while inflation is expected to reduce, the demographics that are causing the labor shortage an entire generation of baby boomers retiring aren’t likely to change.
“I don’t think the power will suddenly shift back to employers,” said Kinder of the Brookings Institution. “If inflation moderates, some of these demand-and-supply difficulties moderate, and workers retain some negotiating leverage, that would be a good conclusion.”
To put it another way, your next increase may feel a lot better if you’re not spending as much for everything else, but we don’t know when high inflation will end.
This item has been updated with new inflation and wage data from the Bureau of Labor Statistics as of March 10, 2022.
Is the minimum salary of $15 creating inflation?
As inflation reaches historic highs, lawmakers and analysts are debating the causes, which include pandemic-related shocks as well as government-imposed limitations and swings in consumer demand.
One New York Times writer remarked this week on Twitter that recent media headlines about inflation are “all hype.” “Policies like the $15 minimum wage” are blamed by “wealthy people.” Instead of being justified in her concern over fast rising prices for everyday items, she claims the recent coverage is “hysteria,” implying that inflation benefits lower-income people since “inflation helps borrowers, and that’s what the fuss is about…not milk prices.”
Minimum wage increases in the past have been shown to induce price increases, which disproportionately affect lower to middle-income persons who spend a bigger amount of their wages on inflation-affected commodities like groceries.
The snowball effect between minimum wage hikes, such as the $15 per hour now in place in numerous states and localities and proposed at the federal level this year, and price increases is documented in a report by Heritage Foundation fellow James Sherk. A $15 federal minimum wage, for example, represents a 107 percent increase over the current federal minimum pay of $7.25 per hour. Employers must adjust their business models to accommodate for the increased labor expenditure when governments enforce substantial minimum wage increases. In many circumstances, this necessitates firms raising consumer pricing to compensate for the higher cost of providing their goods or services. Sherk claims that this hurts minimum wage workers and lower-income consumers the most, because the costs of the products they buy have climbed as well, lowering their newly boosted salaries’ purchasing power.
According to one analysis of the existing minimum wage research, which mostly contains data on price effects from the United States, a 10% rise in the minimum wage raises prices by up to 0.3 percent.
According to one of the studies evaluated by the American Enterprise Institute, the same price boost might produce price rises of up to 2.7 percent in the southern United States, where living costs and earnings are much lower. Recent study also suggests that increased minimum wages have a greater inflationary impact on employers of minimum wage earners. A research by the Federal Reserve Bank of Chicago and the United States Department of Agriculture indicated that raising the minimum wage more than doubled the price increase effect in fast-food restaurants, and much higher in lower-wage areas.
In addition, a Stanford University economist looked at the impact of price hikes by income level and discovered that while “Minimum wage workers come from a wide range of socioeconomic backgrounds, and raising the minimum wage has the greatest impact on the poorest 20% of households.
Minimum wages encourage firms to raise prices to cover some of the additional pay bill, according to this analysis of previous findings. However, this comes at a price employers must be careful not to raise prices too much, as this will generate price-sensitive client demand. Employers are unable to raise prices if they believe that doing so will reduce demand and result in decreased revenues, which will not be sufficient to fund increases in employee wages. Employers are obliged to adjust costs in other ways if this happens, such as lowering other employee benefits, reducing scheduled hours, or laying off staff entirely.
Sherk claims that the price hike effect of rising minimum wages is combined with large job loss effects, implying that minimum wage people are more likely to lose their jobs or have their hours decreased as their cost of living rises. As a result, he believes that increasing minimum wages is an unproductive approach to provide benefits to low-wage workers due to inflationary and job-killing impacts.
Why should the minimum wage not be increased?
Since 2009, the federal minimum wage of $7.25 per hour has remained unchanged. Increasing it would increase most low-wage employees’ earnings and family income, pulling some families out of povertybut it would also cause other low-wage workers to lose their jobs, and their family income would fall.
The Budgetary Consequences of the Raise the Wage Act of 2021 (S. 53), which CBO evaluated in The Budgetary Effects of the Raise the Wage Act of 2021, allows users to study the effects of policies that would raise the federal minimum wage. Users can also build their own policy options to see how different ways to increasing the minimum wage would influence earnings, employment, family income, and poverty.
What is the current rate of inflation?
The US Inflation Rate is the percentage increase in the price of a selected basket of goods and services purchased in the US over a year. The US Federal Reserve uses inflation as one of the indicators to assess the economy’s health. The Federal Reserve has set a target of 2% inflation for the US economy since 2012, and if inflation does not fall within that range, it may adjust monetary policy. During the recession of the early 1980s, inflation was particularly noticeable. Inflation rates reached 14.93 percent, prompting Paul Volcker’s Federal Reserve to adopt drastic measures.
The current rate of inflation in the United States is 7.87 percent, up from 7.48 percent last month and 1.68 percent a year ago.
This is greater than the 3.24 percent long-term average.
How do you figure out inflation adjusted earnings?
For instance, if your current annual income is $50,000 and the 12-month inflation rate is 2%, your adjusted salary would be $51,000 (50,000 1.02 = 51,000), resulting in a $1,000 CPI rise ($51,000 $50,000 = $1,000).
How do you ask for an inflation increase?
“The rate of inflation is increasing rapidly, and I’d like to talk to you about my existing wage and how we’re making sure that it stays equitable to compete in the current inflation rate,” Mustain suggests starting the conversation with your manager.
You might even bring up the inflation rate later in the meeting to bolster your case for more pay. Remember that your performance is the most essential argument in the conversation whenever you decide to bring it up.
Angelina Darrisaw, a career coach and founder and CEO of C-Suite Coach, advises, “Focus your conversation on the value you bring since that’s ultimately what will convince your employer to give you that wage boost.”
Consider the constraints of your employment and the objectives your supervisor set for you, then describe how you fulfilled or exceeded those objectives. Assume you’re a salesperson with a monthly goal of 30 sales. Make a big deal out of it if you’ve routinely made 35.