While Wages Technically Rose in 2021, Inflation Led to 2.4% Pay Cut for Workers

Shot of a young woman mopping the floor of a coffee shop during the day.
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Some workers saw a bigger paycheck in 2021, however inflation is outpacing wage growth — and reducing the purchasing power of U.S. households.

See: Unrelenting Inflation Wiped Out Bump in Workers’ Wages
Find: Grocery Prices Rising Faster Than Restaurant Bills Thanks to Inflation: How Restaurants Could Capitalize

“In what was the best year for wage growth that we have seen in many, many years, it still comes up as a loss for many households,” Greg McBride, chief financial analyst for Bankrate, told CNBC. “Their expenses increased even faster and chewed up all of the benefit of whatever pay raise they had seen.”

According to data from the Bureau of Labor Statistics released on Jan. 12, real average hourly earnings (seasonally adjusted) decreased 2.4% from Dec. 2020 to Dec. 2021. Not everyone will feel the 2.4% cut, though, as real earnings fluctuate widely from household to household based on consumers’ jobs and how they spend their money, CNBC noted. 

Jason Furman, an economist at Harvard University and former economic advisor to President Barack Obama, detailed in a Dec. 2021 tweet that wage growth among the bottom 25% of earners outpaced consumer prices from Nov. 2019 through Nov. 2021. The remainder of workers saw a pay cut, he added, per CNBC.

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Overall inflation increased 7% over the last 12 months, the Bureau of Labor Statistics data found, with food prices being one of the largest contributors to inflation over the last year, GOBankingRates added. Overall, food at home costs rose 6.5% over the past 12 months.

Learn: December Inflation Sees Fastest Price Growth in 40 Years With Food Costs Still Being Impacted the Most
Explore: Inflation and Your Taxes — How Do Higher Prices Impact Your Tax Bracket?

CNBC reported that many economists believe inflation and wage gains will begin to taper off in 2022, but only if supply chain challenges ease to help reduce prices — and COVID-19 cases decline to increase the supply of workers.

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About the Author

Josephine Nesbit is a freelance writer specializing in real estate and personal finance. She grew up in New England but is now based out of Ohio where she attended The Ohio State University and lives with her two toddlers and fiancé. Her work has appeared in print and online publications such as Fox Business and Scotsman Guide.
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