Most Workers Say Paychecks Aren’t Keeping Up with Inflation

Government data may find that inflation is on a downward trend, but inflation’s impact is still having an outsized effect on employees and is contributing to soaring financial stress.

More than half of workers (53 percent) feel their paychecks are not keeping up with the pace of inflation, according to a new Workforce Monitor study from the American Staffing Association and the Harris Poll. About 2,000 workers were surveyed.

Meanwhile, the survey found, nearly 4 in 10 (38 percent) U.S. adults said their overall financial situation is more stressful than it was 12 months ago.

The survey results confirm the financial squeeze employees are feeling, even though government metrics find that inflation has fallen significantly since its 40-year peak in summer 2022, said Richard Wahlquist, chief executive officer at the American Staffing Association.

“Americans continue to feel the pain of inflation every time they go to the grocery store or the gas pump,” he said, “and over the past few years, many went into debt to keep up with inflation.”

[SHRM’s All Things Work: Employee Financial Stress Peaks]

The latest Consumer Price Index found that inflation fell to 3.1 percent year-over-year in January, before seasonal adjustment, the U.S. Bureau of Labor Statistics (BLS) reported Feb. 13. That’s down from the unadjusted 3.4 percent annual gain seen in December—and a significant improvement from the 9.1-percent high notched in June 2022.

But, Wahlquist said, statistics about employees’ financial security aren’t improving at the same rate.

Household debt rose in the fourth quarter, according to the New York Fed, and a recent Bankrate survey found that over 1 in 3 Americans owe more in credit card debt than they have in their emergency savings, with 66 percent saying they’d be worried they’d have enough savings to cover a month’s expenses if they lost their primary source of income. And just 42 percent of U.S. employees rate their financial health as good or excellent, a 10-year low, according to a study released last year by Bank of America.

Meanwhile, new data out this week from the USDA found another alarming financial statistic—that Americans are spending more of their income on food than they have in over 30 years. U.S. consumers spent more than 11 percent of their disposable income on eating in 2022, the highest percentage since 1991. 

These higher costs of living are all happening against the backdrop of slowing salary increases. While inflation resulted in higher raises in the past two years, data has found that pay hikes in 2024 are down compared to those in 2023. Meanwhile, bonuses are showing signs of slowing as well, while layoffs and economic fears—and their own inflation concerns—are causing employers to tighten their purse strings. “Inflation has been outpacing wage growth since 2021,” Wahlquist said, “so [the survey finding] is a continuation of a trend that consumers have been dealing with for the past three years.”

Employer Action

Insiders suggest that organizations need to realize that high costs of living are still a major problem for employees and take actions to help. That’s a priority, given the impact employee financial stress has productivity and presenteeism. Workers are also more likely to leave their jobs for a smaller pay bump than they have been in previous years, recent data indicates.

Being strategic about pay—and not shying away from salary increases in particular—is one smart approach, said Ruth Thomas, pay equity strategist at Payscale. 

“Workers still feel the burden of higher prices, contributing to tensions on growing wealth inequality and potential unrest,” she told SHRM Online recently. “Employers should ensure pay increases remain strong and consider salary adjustments to keep up with market changes to avoid turnover from employees seeking better pay.”

Other financial benefits are also important, from financial literacy training—which is already in place at organizations like Walmart—to other financial benefits, like student loan repayment plans and emergency savings options.

“It’s also important to remind employees of the financial planning resources available through the company’s employee assistance program,” Wahlquist said.

Wahlquist added that while there is no silver bullet, making any effort to understand—and then address—the financial stress that employees are feeling is paramount.

“Unfortunately, employers don’t have a magic wand that can eliminate all of their employees’ financial stress,” he said. “Taking an active interest in employees’ financial well-being helps drive engagement and trust in the leadership of the organization.”