Americans are expecting higher pay, even as the outlook for the job market has dimmed a bit, according to a July consumer survey released recently by the Federal Reserve Bank of New York.
The Fed's July SCE Labor Market Survey uncovered new findings about the current job market. This report analyzes worker expectations and the current state of the job market to identify potential misalignments.
Dampening worker outlook on the labor market
Survey data revealed the job market outlook may have worsened over the past year, with workers’ expectancy of becoming unemployed reaching 3.9% — the highest reported level since the beginning of the pandemic in March 2020. There was also a slight downward movement in employment, with 91.4% of people employed four months ago retaining their jobs compared to 91.8% who retained jobs in the July 2022 survey.
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This discouraged sentiment is further echoed by drops in job seekers’ expectations of receiving at least one job offer within the next four months. Job seekers showed an average expected likelihood of 18.7% this year, vs 21.1% a year ago. Those on the job search are less optimistic than last year despite fewer people in the race for open positions.
Fewer job seekers, higher salary expectations
Fortunately for many job hunters, there’s less competition than there was a year ago, as the number of job seekers dropped 5.3% from July 2022. While the number of job hunters declined, wage expectations increased year-over-year. Survey respondents expected an average annual salary of $67,416 on job offers within the next four months; that was notably higher than last year’s average salary expectation of $60,310. In actuality, full-time offers surpassed worker expectations: averaging $69,475. In July 2022, average wages were more closely aligned with expectations, at $60,764.
Although job offers are coming in higher than workers expect, the figures are still drastically different from the minimum amount workers are willing to accept on a new job offer, also referred to as the average reservation wage. This year, the average reservation wage was $78,645, marking a sharp increase from 2022’s reservation wage of $72,873. So workers aren’t willing to accept job offers below this amount, but they fully expect low-ball offers from potential employers.
Could higher wages bolster inflation?
In an economic environment where the cost of living has skyrocketed and inflation impacts the wallets of many Americans, it’s easy to see why workers demand higher wages than what employers offer. However, experts debate whether these wage increases and worker wage expectations may prevent inflation from dropping further towards the Fed’s target of two percent.
That could potentially lead the Fed to revisit its plan and raise rates again rather than pausing or eventually lowering the federal funds rate. However, a recent report from the Federal Reserve Bank of Cleveland found that the increase in wage growth isn’t necessarily tied to labor market imbalances and is instead a result of the higher cost of living associated with inflation. The study found that these wage increases likely won’t last forever, with a projected 3% annual decline in wage growth by 2025.
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