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Key Points:
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The average minimum acceptable salary for workers to switch jobs rose to $78,645 in the second quarter of 2023, an 8% increase from a year ago and the highest level ever in a data series dating back to 2014.
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Wages have been identified as a driving force in inflation, with the Federal Reserve keeping a watchful eye on increasing wage demands. The New York Fed and Atlanta Fed both noted substantial increases in wages.
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Despite rising wages, there are mixed signals in the labor market, including a decrease in job seekers and a drop in job openings.
If you've been wondering about the job market recently, you're not alone. The word on the street is that American workers are asking for higher salaries, and the data is backing it up.
Rising Reservation Wages Amid Pandemic Era
In a recent employment survey released by the New York Federal Reserve, the average minimum salary that workers are willing to accept to switch jobs, known as the "reservation wage," rose to a record high of $78,645 in the second quarter of 2023. That's about an 8% increase from the previous year, and the highest it's ever been in a data series that started in 2014. In fact, over the past three years, which includes the COVID-19 pandemic era, the reservation wage has risen more than 22%.
Now, if you're an economics buff, you may know that wages can play a big role in inflation. In the past year, even though the prices of goods have eased a bit, wages have continued to increase, keeping inflation higher than the Fed's targeted rate of 2%. This is significant, especially when you consider that the New York Fed's data is in line with an Atlanta Fed tracker, which shows wages overall rising at a 6% annual rate, while job switchers are seeing 7% gains.
Inflation Pressures and Employer Response
Here's the kicker. Employers are trying to keep up with the rising wage demands. In the past year, the average full-time salary offer has jumped to $69,475, a 14% increase. Meanwhile, the actual expected annual salary has risen to $67,416, a gain of more than $7,000 from the previous year. Even though there's still a gap between the wage that workers want and what's being offered, satisfaction with compensation and upward mobility has increased across the board.
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So, what does all this mean for the economy and job market? Well, with the Federal Reserve keeping a close eye on wages and inflation, there's a chance that policymakers will keep interest rates higher for longer. In fact, at their July meeting, officials noted that wages "were still rising at rates above levels assessed to be consistent with the sustained achievement" of the 2% inflation goal, according to minutes from the meeting.
Mixed Signals in the Labor Market
Despite the wage increases, there are some mixed signals in the labor market. For one, the number of job seekers has declined to 19.4% from 24.7% a year ago. Job openings also fell by 738,000 to 9.58 million, according to the U.S. Bureau of Labor Statistics. Furthermore, the likelihood of switching jobs dropped to 10.6% from 11% a year ago, and expectations of being offered a new job also declined to 18.7% from 21.1%.
The Bottom Line
As the job market evolves and workers seek higher salaries, it's essential to approach your career decisions with both ambition and caution. The rising average reservation wage is indicative of changing times, but it's crucial not to rush into demanding a pay raise without a comprehensive understanding of your financial landscape. While the promise of increased wages is tempting, it's wise to proceed thoughtfully.
Before considering a leap to a new job with a potentially higher salary, take the time to monitor your personal finances. Keep a close watch on your financial health, track expenses, and evaluate your savings. The financial world can be complex, but staying informed is key. By staying on top of your finances, you can make educated decisions that align with your long-term goals.
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Elinor Rozenvasser is a content writer and editor with a knack for finance. She holds a Bachelor's in Communications and Business from Reichman University, and has been swimming alongside finance specialists for over a decade. She's not your typical financial writer, though. She's more likely to use witty puns and sarcasm than jargon and technical terms. But don't let that fool you. She's still a whiz when it comes to explaining complex financial concepts in a way that anyone can understand. If there's any writer who can make finance fun and engaging, Elinor is your girl. She's sure to leave you laughing (and learning) long after you've finished reading her work.
