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Impact of the COVID-19 Pandemic on Wage Growth

October 29, 2021

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As the COVID-19 crisis swept across the world, it changed the way people live, work, and spend their free time. However, nowhere was the disruption greater than in the need to adapt to a “new normal,” especially with regard to remote or hybrid work. HR managers everywhere struggled to create new frameworks for businesses and workers who may have been caught unawares by the crisis. In doing so, some needed to adjust wages and benefits, while others tried to address new risks, such as cybersecurity and deteriorating mental health. 

Wage growth in the US and abroad remains one of the significant uncertainties of this healthcare crisis. With various industries now affected by both financial and healthcare problems, American HR managers and workers are looking to the future with hope. Many of them assume that most of the issues currently disrupting their businesses will be addressed by the end of the year and that everything will soon get back to normal. However, with the Delta variant of the virus now causing new problems worldwide, the future may prove to be more problematic than otherwise expected. But what is the real impact of the COVID-19 pandemic on wage growth in the US, and how can it be used in making better forecasts?

Finding Balance in Uncertain Times

Although the US economy was on the rise just a few months ago, having seemingly overcome the pandemic and the crisis that followed, the current situation is looking pretty grim. The prior recovery is starting to look more and more like a bubble as the spread of the Delta variant continues to prevent customers from spending. Even worse, higher natural gas and oil prices, pessimistic inflation forecasts, and the lack of stock market gains may also contribute to the fact that consumer confidence is now below expectations. As concerns are starting to grow across various industries and businesses, one thing seems to remain unchanged: the labor market is undoubtedly recovering.

According to a Pew Research Center analysis, wage growth remains unaltered by these changes for most US workers, and there is also just a marginal impact on inequality. The report shows that the earnings of employed Americans were largely unaffected by the healthcare crisis and, although income inequality did rise last year, during the recession, the disparity was only temporary. The brief duration of the recession meant that the earnings of low-wage workers and those of high-wage workers were to ultimately evolve similarly between 2019 and 2021. However, with worries about the Delta variant and other strains of the virus that cause COVID-19 now on the rise, many are wondering if things are about to change.

The Need for Normalcy

At no time is the need for normalcy greater than during a global crisis that disrupts multiple industries. That is precisely why HR managers should make sure the information they base their future frameworks on is indeed correct and easily verifiable from multiple sources. 

When it comes to wage growth, a new ADP analysis paints a somewhat different scenario. According to the report, year-over-year wage growth remains depressed in the US as a result of the healthcare crisis impact. Even though June wages were 2.3% higher than a year ago, the second-quarter average pointed to a 1.5% growth rate, compared to a 6% average in Q1, 2021. 

However, not all US workers seemed to have been equally impacted by the pandemic when it comes to earnings. In fact, wage growth is on the rise among those changing jobs in 2021, as American companies are now struggling to find new talent. According to the report, job-switcher wage growth averaged 5.3% in Q2, 2021, up from 4.9% in Q1. Nela Richardson, chief economist at ADP, explained that the second-quarter results in the ADP report point to a growing comfort in moving within companies and within industries. American companies are now offering more competitive salaries and benefits to those willing to change their jobs in uncertain times.

Both reports indicate that the labor market recovery remains strong even as the COVID-19 pandemic continues to disrupt the US economy. However, if the Pew Research Center analysis seems to show that the healthcare crisis had little impact on inequality, the ADP results are different when it comes to job switchers. As HR managers know well, a healthy labor market is one marked by stability, while a market that favors continuous change might point to future issues. Only time will tell if the American market can ultimately manage to overcome all these issues with ease, or if the future will continue to test the endurance of both employers and their employees.