Jan 28, 2022 - Economy

The race between inflation and wage growth

Illustration: Aïda Amer/Axios

Workers held more power over their employers last year than ever before, but that still hurt them in the end.

Why it matters: Higher wages and benefits that workers received are quickly getting passed back down to them in the form of price hikes that companies say they have to enact to keep profits growing.

Driving the news: Employers paid 4% more in wages and benefits in 2021 than 2020, according to the Employment Cost Index out today.

  • Yes, but: Growth in the last part of the year was below what analysts expected, as noted by Axios chief economic correspondent Neil Irwin.
  • Meanwhile, prices grew 4.9% last year, per the core PCE index (the Fed’s preferred measure of inflation), also released today.

The rub: Some business leaders who have complained about labor shortages have seen their pay grow exponentially greater than their workers' pay, according to a new study from Accountable.US shared first with Axios.

  • Overall, in 2020, the ratio of CEO-to-worker compensation was 351-to-1 under the realized measure of CEO pay, up from 307-to-1 in 2019, according to the Economic Policy Institute.

What they’re saying: Workers were hurt in the first phase of the pandemic, when more than 20 million people lost their jobs, and they're now facing this second phase where inflation growth will remain higher than pay growth this year, Nicholas Economides, professor of economics at the Stern School of Business, tells Axios.

What to watch: The Fed has made fighting inflation one of its main goals this year.

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