Private-sector wage growth hits record highs across occupations but fails to keep up with inflation

Nominal wage growth is at record highs, but failing to keep up with inflation, in most occupations and industries. Here are three takeaways from today’s Employment Cost Index (ECI) Report from the U.S. Bureau of Labor Statistics:

We’re seeing the fastest nominal wage growth, in both goods-producing and service-providing industries, since the government started collecting ECI data. Wages and salaries for all private-sector workers increased by 5% and total compensation by 4.8% in Q1 2022 over the year. Those are the highest year-over-year growth rates going back to 2001. Both goods-producing (4.4%) and service-providing (5.2%) industries saw record growth.

Nonetheless, inflation is eroding workers’ purchasing power in all occupations, except accommodation and food services. With inflation at a 40-year high, nominal wage growth is failing to keep up. Real wages—what employees earn after taking inflation into account—decreased 3.6% overall—and by as much as 4.6% in professional occupations. Inflation is weighing on consumer confidence.

There is a strong relationship between nominal wage growth and employee quits. According to data from the Atlanta Fed, wage growth first rose for job switchers but has recently broadened, spiking for job stayers as well. Employers are raising wages not only to recruit new candidates in a tight labor market, but to hold onto the workers they’ve got. There is a clear correlation between nominal wage growth, as measured by the ECI, and the quits rate reported in the Job Openings and Labor Turnover Survey. Most recently, the quits rate was highest in leisure and hospitality at 5.6%. That sector has also seen the fastest nominal wage growth (9.0%).