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New data shows companies are spending more on workers

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The Labor Department’s Employment Cost Index, the broadest measure of what employers are spending on workers, is out today.

Total compensation — wages and salaries, plus benefits — was up 4.5% on an annual basis in the first quarter of 2022. That’s nearly double the pace of one year earlier. In the private sector, benefits were up a little over 4% and wages and salaries rose 5%. That is by far the fastest pay inflation since counting started 20 years ago.

Chris Knudson, the owner of Well 80, a brew pub in Olympia, Washington, is seeing this firsthand. He said sales are higher than before the pandemic. In fact, pretty much everything’s higher.

“It feels like it’s become more and more often that we’re changing menu pricing and increasing wages and things like that,” Knudson said.

“Things like that” means spending more on hiring and retention. “In the past, we would have just had enough applicants that were just coming in off the street. But now we’re having to go out and recruit, we’re having to entice and retain staff,” Knudson said.

While employers spent 4.5% more on total compensation this year compared to last, bars, restaurants and hotels spent nearly 9% more. 

That includes benefits, said Dan North, an economist at Allianz Trade. “Better packages for health insurance, life insurance, enhanced retirement accounts, free gym memberships,” he said, and the list goes on.

Employers’ costs for everything else are going up, too. Gasoline, shipping, rent prices have all gone up. How are they affording it?

“Obviously, trying to pass the prices on to consumers,” North said. Business owners could cut their profit margins, “but economic demand is good,” he added. “Passing prices on is apparently working in many industries.”

Employers are also trying to save on labor, according to Kathryn Petralia, president of the small-business consulting firm Kabbage.

“Automate more and use fewer humans. Levering technology to make it easier to operate more leanly,” she said.

Higher wages and better benefits are good for workers, said Sinem Buber, an economist at ZipRecruiter. But: “People are taking a bigger paycheck with less purchasing power,” Buber said.

Wages and salaries may be up 4.7% from a year ago, but prices are up more than 8%

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