Salary Increases May Not Increase Spending Power

Inflation caused by the pandemic is now something that we will need to manage. While pay raises are returning to pre pandemic levels inflation is neutralizing them. Salary increases for 2021 match those of the previous decades and the same is forecast for 2022. Average raises in 2022 will be higher than in 2021, but inflation in 2021 will exceed them. This new equation could lead workers and unions to demand cost-of-living adjustments to salaries. During the pandemic some pay ranges dipped, but are expected to return to pre-pandemic rates in 2022. The inflation rate in 2021 is 5.4% and was 1.7% in 2020 which means that if your pay increases by 3% that your purchasing power is actually decreasing. Employers, confronted with COVID variants, may not be in a position to offer salary raises that will accommodate inflation. This may cause employees to search for employment at higher salaries. A positive is that 8% of companies did not give raises this year but only 3% plan on not giving raises next year. Employers need to simultaneously manage fixed costs while offering sign-on, referral and retention bonuses, skill premiums, midyear adjustments, or pay raises. Employees may benefit from exercising moderation with spending because a raise may not necessarily increase purchasing power right now.

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