White-hot inflation is forcing American workers to effectively take a pay cut, federal data revealed on Wednesday.
Real average hourly earnings — a measure of wages after adjustments for inflation — dipped by 1% in June compared to May, according to a Bureau of Labor Statistics release.
Inflation increased by 9.1% in June compared to the same month one year earlier and jumped by 1.3% from May to June. The 1.3% monthly increase erased a 0.3% increase in average hourly earnings over the same period, the data showed.
Jason Furman, the ex-chair of former President Barack Obama’s Council of Economic Advisers, described the recent drop in real wages as “terrible” and noted it marked “the fastest pace of decline in 40 years.”
On a yearly basis, real average hourly earnings declined by 3.6%. When combined with a 0.9% decrease in the length of the average work week over the same period, real wages are down 4.4%.
The decades-high inflation has overtaken wage growth despite historically tight labor conditions that have given workers unprecedented leverage in the workforce. With the national unemployment rate at just 3.6%, the labor market is still so competitive that workers are quitting their jobs in search of better opportunities.
Consumer spending could come under more pressure in the months ahead as the Federal Reserve implements aggressive rate hikes — effectively making it more expensive to borrow money.
President Biden and other top White House officials have touted the labor market as a sign of the underlying strength of the US economy despite mounting fears of an upcoming recession.
“The historic strength of our job market is one reason our economy is uniquely well positioned to tackle a range of global economic challenges — from global inflation to the economic fallout from [Russian President Vladimir] Putin’s war,” Biden said in a statement last week.
But wage gains have consistently trailed inflation rates for months. The Labor Department’s jobs report last week showed average hourly earnings rose 5.1% year-over-year in June — even as inflation rose at its sharpest clip since November 1981.
At the same time, higher prices are sapping the buying power of American households. As The Post reported, the average household paid nearly $500 extra in June due to inflation.