Employers could see this coming, and now they say it’s hard to imagine how long it will last.
U.S. labor costs in Q3 2021 increased by the biggest margin since 2001 as companies boosted wages and benefits amid a severe worker shortage, suggesting inflation could remain high for some time.
The Employment Cost Index (ECI), the broadest measure of labor costs, surged 1.3 percent in Q3 2021 after rising 0.7 percent in the quarter before, the Labor Department said in October. It marked the largest gain in 20 years.
Labor costs powered ahead 3.7 percent on a year-over-year basis, the largest rise since the fourth quarter of 2004.
The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack and is seen as a predictor of core inflation because it adjusts for composition and job quality changes. Economists polled by Reuters had forecast the ECI advancing 0.9 percent in the third quarter.
Wages and salaries soared 1.5 percent after increasing 0.9 percent in the second quarter. They were up 4.2 percent year-over-year. Benefits gained 0.9 percent after rising 0.4 percent in the April-June quarter.
Additionally, U.S. employers were expecting their group health plan premiums to increase, on average, around 5 percent in 2022, even after taking cost-management initiatives into account, according to recent employer surveys by several HR consultancies.
As companies are paying more to recruit and retain workers, they are also struggling to find applicants. The COVID-19 pandemic has upended labor market dynamics, creating an economy-wide acute shortage of workers that nearly all industries are facing.
According to a Gallup study in July, 48 percent of employees are actively looking for their next role and 1 in 4 will find a new role in the next six months.
Meanwhile, the most recent unemployment claims report for the week that ended Nov. 20 noted the lowest number of new claims—199,000—recorded in more than 50 years.
Yet while there is a record low number of people claiming unemployment, there also were 10.4 million job openings at the end of September (1.4 for each employee seeking work), and a record-setting 4.4 million people quit their jobs that month, either leaving the workforce or choosing to work elsewhere.
Switching jobs can pay off: A September study by Zippia Research showed that after switching jobs, salary increases 14.8 percent on average and wage growth rises 5.8 percent.
Workers between the ages of 25 and 34 receive the highest wage increase, at 9.8 percent. The bigger the company, the larger the pay raise: Companies with more than 1,000 employees offer an average pay raise of 6.9 percent.