Wages showing signs of inflation

As prices continue to rise with inflation, some wages are also increasing. However, economists aren't predicting the classic wage-price spiral that historically occurs to keep inflation high, The Wall Street Journal reported Oct. 31. 

The inflation rate has sat above 5 percent over the past four months, the highest it's been in decades. Wages also increased by 4.2 percent since last year. Labor shortages across multiple industries drove employers to raise wages to remain competitive and attract employees. The wage increases affected some sectors more than others, with low-paying industries like hospitality and leisure seeing wages rise by 7.6 percent since last year. McDonald's said its wages were up 15 percent on average. 

"Wage increases were initially concentrated among lowest-wage restaurant workers," said Veronica Clark, a Citi economist.

However, economists don't believe the wage increase will result in a spiral that drives prices up, which then causes employees to ask and receive higher wages. 

"The relative price of fast food and deliveries may go up because of a tight labor market, but I don't see that as a persistent wage-price spiral," Lawrence Katz, PhD, a labor economist at Cambridge, Mass.-based Harvard University, told The Wall Street Journal.

Wages still lag behind inflation rates. The declining power of unions, slow-adjusting minimum wages and lower productivity growth have restrained wage increases that historically would have adjusted to inflation rates a lot faster. The length of labor shortages will contribute to determining whether wages continue to increase.

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