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Impact of Inflation on Worker Salaries

RVG & Company
April 1, 2022

Business owners, CFOs, and managers are finding that inflation is outpacing wage increases and the purchasing power of its employees. As a result, workers are resigning at the highest rate and advancing their pay at new employers from 25% to 30%. Additionally, some employers are allowing wages to lag the rate of inflation hoping that as COVID-19 lessens, workers will rejoin the labor market and job openings will moderate, and the pressure to increase wages will ease.

While many employers are waiting for the job market to turn around in their favor, as opposed to increasing wages, other employers are taking steps to attract and retain workers by enhancing salaries, benefits, and other workplace improvements.

This article will outline some of the challenges and measures that employers are taking to deal with the impact of inflation on wages.

Salary Increases

In February the Labor Department reported that the Consumer Price Index rose by 7.9%, which is the fastest rise in 40 years. Also, the Producer Price Index (PPI) rose by 7.9%. The PPI measures the cost of producing goods that are ultimately sold to consumers. When the cost of producing goods rises, consumers will be faced with paying more for goods and services. Consequently, without a corresponding increase in wages, workers’ purchasing power will decline.

While businesses are expected to raise wages, approximately only 44% of employers plan to raise pay by more than 3%. Based on these anticipated wage increases, workers’ salaries will fall behind the rate of inflation. Consequently, workers are seeking new employment to obtain a significant salary increase. Nearly, one-third of workers entering new jobs are getting a salary increase of 30%.

Moreover, the Quit Rate, tracked by the Bureau of Labor Statistics, has been between 2.8% and 3% since June of 2021, which is the highest rate since 2000. The combination of the Quit Rate and the prospect of higher salaries for changing jobs is creating a challenge for employers to attract and retain employees. Therefore, employers are seeking alternative means coupled with wage increases to maintain their current employees and draw new ones.

Benefits and Workplace Incentives

Companies seeking to attract and retain employees are offering workers an array of enticements, including signing bonuses, flexible work schedules, and grants for higher education.

While training and tuition assistance have been available for several years for employees, many employers are now increasing their 401K matching contribution and awarding employees special spot bonuses for exceptional work.

A new feature of the job market that resulted from the COVID-19 pandemic was the ability of many employees to work remotely. This aspect has provided workers with the flexibility to meet the demands of their jobs and personal lives. As the pandemic is receding, many employers are instituting a remote work policy for employees that want to be fully or partially remote. An employer’s willingness to adopt this structure creates an environment to attract a broader range of worker talent.

In addition, employers are evaluating compensation plans that reward a broader base of employees with incentive-based compensation. In this regard, employers are providing bonuses and pay increases that are tied to the success of the company and the employee. This type of incentive-based compensation was once exclusively reserved for senior management, but it is now gaining appeal for all employees. Thus, as the company grows and the employees develop, their wages will increase as well. This provides a greater connection between the employee and the company concerning long-term job retention.


The demands placed upon a business to respond to the impact of inflation on workers’ salaries can be addressed by combining wage increases with other benefits to retain and attract employees.

If you need advice or assistance to evaluate your employees’ benefits, please call RVG & Company today, at (954) 233 1767.