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Wages and Salaries Up 5% for Private Industry Workers in 2021, Less Than Inflation

Labor costs increased at the highest rate in two decades

A green arrow is seen on a one hundred dollar bill.

During 2021, wages and salaries rose 5 percent for private industry workers in the U.S., up from 2.8 percent in 2020, the Bureau of Labor Statistics (BLS) reported on Jan. 28. Benefit costs for private industry workers in 2021 rose 2.9 percent, up from 2.1 percent the year before.

Private-sector pay and benefits together—what the BLS calls "total compensation costs"—rose 4.4 percent during 2021, up form 2.6 percent for 2020.

However, when adjusted for inflation, "constant dollar" private wages and salaries fell 1.9 percent for the 12 months ending December 2021. 

Consumer prices rose 7 percent year-over-year in December 2021, the largest 12-month increase in nearly 40 years, the BLS reported on Jan. 12, adding pressure on employers to raise wages going into 2022.

[Update: As U.S. inflation continues to surge, consumer prices rose to 7.9 percent year over year in February 2022, the BLS reported on March 10.]

SHRM Online has compiled the following articles looking at rising pay rates and inflation.

Labor Costs Grew at Fastest Pace in Two Decades

Economists caution that there are numerous factors contributing to high inflation during the pandemic, especially an overwhelmed supply chain. But labor costs are a significant contributor to rising prices. And the current tight labor market is encouraging many workers with bargaining power to switch jobs and demand more pay, raising the risk of a destabilizing inflation dynamic known as a wage-price spiral.

(Wall Street Journal)

Inflation Is Wiping Out Pay Increases

The same strong economic recovery that is emboldening workers is also driving up inflation, leaving most Americans with less spending power than they had a year ago.

In interviews with more than a dozen workers, many said that despite considerable pay raises—as much as 33 percent, in some cases—they were still struggling to cover basic expenses. Several workers said they had taken second jobs to keep up with rising costs for groceries, gas and rent.

(Washington Post)

Companies Revising Pay-Budget Expectations

Employers have been continually adjusting their salary budgets as pay pressures have escalated. While most estimates for salary budget growth in midyear 2021 were in the 3 percent to 3.3 percent range, near the end of the year consensus expectations were closer to 4 percent.

More recently, in a December survey of 551 senior U.S. HR leaders, 51 percent of respondents said their organization expected average merit increases of more than 5 percent, while 88 percent said their company expects average merit increases of more than 3 percent.

(SHRM Online)

Total Rewards Strategies for 2022

The coming year promises to be the most competitive yet for employers. What worked in the past won't cut it in this new, fiercely competitive environment. Generous salaries are but a start. Savvy employers must develop an aggressive compensation strategy that includes quality of life benefits, flexible work arrangements, and performance-based incentives. Those that fail to step up their game will find themselves on the losing side of the talent war.


Will 2022 Break Compensation Budgets?

Pressure on worker pay is not equal for all categories of jobs. Employers can look for ways to shift funds in compensation budgets to jobs that are particularly hard to fill and retain, ranging from front-line hourly positions to science, technology, engineering and math positions. For example, as more companies seek to manage supply chain and cybersecurity risks, pay for expertise in those areas has been soaring.

Other steps to manage pay structures include developing wider pay ranges for hard-to-fill jobs to give hiring managers greater latitude when making job offers and gathering real-time information on the state of the market from internal and external recruiters. For specific jobs, it may be necessary to conduct salary surveys and market pricing analyses more frequently than the usual annual practice.

(SHRM Online)


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