Title: Rising Reservation Wages Reflect Inflationary Impact on Labor Market
Subtitle: Record High Salaries Demanded by Workers Indicate Persistent Inflation
Date: August 19, 2023
In a concerning sign for the labor market, the average “reservation wage” has reached a record high this year, highlighting the impact of inflation on workers’ compensation. According to the recent New York Federal Reserve employment survey released on Monday, the minimum acceptable salary offer for job switchers rose to a staggering $78,645 during the second quarter of 2023. This figure represents an 8% increase compared to just a year ago, making it the highest level ever recorded since 2014.
The concept of reservation wages, which denotes the amount of money workers are willing to accept in order to change jobs, has gained significance amid growing concerns about inflation in recent years. While the prices of goods have somewhat stabilized since mid-2022, following a period of unprecedented inflation, wages continue to surge, keeping overall inflation well above the Federal Reserve’s targeted rate of 2%.
The New York Fed’s data aligns with the findings of an Atlanta Fed tracker, indicating that wages overall are rising at a 6% annual rate, while job switchers are experiencing even higher gains of 7%. As employees increasingly demand higher compensation, employers have been striving to keep pace, resulting in a 14% surge in the average full-time job offer over the past year, averaging at $69,475. Moreover, the expected annual salary has surpassed the $67,000 mark, experiencing a gain of over $7,000 from a year ago, also reaching a record high.
The widening gap between workers’ desired wages and actual offers underscores the growing importance of wages as a driving factor in inflation. Despite the discrepancy, the survey indicates an overall increase in satisfaction with compensation and upward mobility.
These developments in the labor market carry implications for the Federal Reserve’s next policy steps and interest rates. With markets eagerly monitoring the central bank’s actions, signs of a tight labor market heighten the likelihood that policymakers will maintain higher interest rates for a longer period. During their July meeting, officials acknowledged that wages were rising above levels deemed consistent with achieving the targeted 2% inflation goal.
In addition to record-high reservation wages, Monday’s survey results also revealed mixed patterns in the labor market. The percentage of job seekers, those actively searching for employment in the previous four weeks, decreased from 24.7% to 19.4% compared to a year ago. Concurrently, job openings fell by 738,000 to 9.58 million, as reported by the Bureau of Labor Statistics. The likelihood of job switching and expectations of being offered new positions also experienced slight declines, showcasing the evolving dynamics of the labor landscape.
As the labor market faces inflationary pressures and workers persistently demand higher wages, the ramifications on overall economic stability and the Federal Reserve’s policy decisions remain key areas of interest moving forward.