If you are working, you might as well take off an hour early on Friday. As you can see from the chart, wage growth is now lagging price inflation. The 2.4 pt gap equals about an hour’s work against a 40 work week.
I’m guessing millions of younger workers are coming to the hard realization that wages don’t generally keep up with rapid inflation. Employers tend to index wages to what other businesses are paying, not how much cars, houses, energy, or healthcare cost.
The gap to inflation is also influenced by technology. If wages get too high, businesses are further encouraged to digitize or automate. The costs for software and robotics drops every year, putting the squeeze on pay increases businesses need to provide.
When I look back at my career, I see that almost all of my wage growth versus inflation came from promotions. Sure, I had years when I was 2-3-4 pts above inflation, but I also had years when my merit increase didn’t keep up. I even remember a couple bad years when MegaCorp just froze everyone’s pay outright. That wasn’t good for morale, but big surprise … MegaCorp continued on.
My advice for folks early in their career is to just focus on reaching the next rung on your career ladder and ignore what is happening with your annual raises relative to inflation. Promotions will boost your income 10-20-30% in a single jump and make annual merit increases look immaterial.
Besides, if you are effectively positioning yourself to move up, you are probably getting higher than average annual raises already.
How much of a role did annual increases play in your journey to FIRE versus promotions?
HAVE A GREAT WEEKEND …
Image Credit: Reddit r/dataisbeautiful