Many workers who changed jobs recently saw raises from their new paychecks outpace inflation by a wide margin — by nearly 10% or more, according to a new study by the Pew Research Center.
The typical American who changed employers in the year from April 2021 to March 2022 got a 9.7% bump in their “real” wages over a year earlier, according to Pew, a nonpartisan research organization, which analyzed federal labor data.
“Real” wages measure the change in a worker’s pay after accounting for inflation, which in June was at its highest level in more than 40 years.
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The figure cited by Pew represents the median, meaning half of workers who switched jobs got a net pay increase of 9.7% or more. The other half of job switchers got a smaller net raise or saw their net earnings decline.
Workers have been leaving their jobs at elevated rates since early 2021 in a trend known as the Great Resignation. Demand for workers boomed as the U.S. economy reopened broadly from its pandemic-era hibernation, leading businesses to compete by raising pay.
Workers who switched jobs reaped more of a financial benefit than those who stayed with their employer, Pew found. The median worker who remained at the same job from April 2021 to March 2022 saw their earnings fall by 1.7% after accounting for inflation, according to the study.
The dynamic of higher wage growth for job switchers relative to other workers was typical even before the Covid pandemic, but it’s likely stronger in the current labor market given how rapidly wages are rising, according to Daniel Zhao, senior economist at the career site Glassdoor.
“Workers have the most leverage when they go out and switch jobs and find another employer willing to reset their pay to the market level,” Zhao said.
Employers don’t have as much incentive to give big raises to employees who remain in their current roles, because they’re implying a willingness to stay put for their current pay, Zhao said. And employers generally give raises just once a year; someone who finds new employment essentially get an extra raise, he said.
Job market, still hot for now, may cool
However, U.S. Department of Labor data issued Tuesday suggests a slowdown in the labor market is underway — meaning workers’ bargaining power may wane, too.
Job openings, an indicator of employer demand for workers, fell to 10.7 million in June, a decrease of about 605,000 relative to May, the agency reported. It was the third consecutive month of declines since March, when there were almost 11.9 million job openings, a record — meaning there may be fewer opportunities to hop to a new job.
The Federal Reserve is raising borrowing costs in a bid to cool the economy and labor market to tame stubbornly high inflation. While it generally takes time for that monetary policy to work its way through certain sectors of the economy, employers may be pulling back on hiring plans in anticipation of a slowdown, Zhao said.
“It does seem like worker power during the last two years was likely strongest at the end of last year or beginning of this year,” Zhao said. “If the job market continues to cool, we should expect to see worker power cool, as well.”
Despite that relative cooldown, the labor market still appears to be tilted in workers’ favor. Job openings remain well elevated from historical levels despite the significant drop in June. Layoffs also declined, meaning employers are hanging onto their existing workers.
The level of voluntary departures (quits) — another barometer of worker power — declined slightly from May to June, though as with the level of job openings it is still high in historical terms. However, departures in two sectors — finance and real estate — fell back to pre-pandemic levels in June, suggesting the Great Resignation in those industries has come to an end, Zhao said.
“At this point in the labor market recovery, a decline in job openings isn’t concerning,” according to Nick Bunker, an economist at job site Indeed. “A pullback in hiring intentions absent a significant decline in actual hiring is a sign of a cooling labor market, but not one where the temperature is plummeting.
“The labor market remains hot,” he added. “A continued slow cooldown would be more than manageable.”