Financial Associated Press (Shanghai, editor Xiaoxiang) news, in the new year, have you raised your salary? This topic, which is of most interest to many office workers at the beginning of each year, may be plunging the European and American economies into an insoluble "prisoner's dilemma".
On Friday, the U.S. Department of Labor released data showing that the average hourly wage in the United States rose sharply by 5.7% year-on-year in January, far exceeding the market expectation of 5.2%, and also hitting a new high since mid-2020. For a time in Europe and the United States, soaring wages seem to have become the latest hot topic behind high inflation - should wage increases?
If wages do not rise, people in Europe and the United States will complain that the wallet is difficult to keep up with the pace of rising prices, and the days are getting more and more difficult, and more and more people even do not hesitate to "naked words" to jump to companies and positions with better salaries.
Wage increases, in the eyes of central bank policymakers, could affect their overall price control: when workers get a raise, they will need more goods and services, which in turn will lead to further price increases – wage growth effectively increases the total income and passes on operating expenses at higher prices to consumers, essentially forming a continuous cycle of price increases.
In finance, there's a technical term for this phenomenon: the wage/price spiral – americans living in the 1970s experienced it!
Difficulty for enterprises: can not take care of costs Amazon has raised wages sharply
Just a few days after Last Friday's non-farm payrolls data sparked a hot discussion on salary in European and American financial circles, Amazon became the latest case in the tide of salary increases in the US business world.
In an internal memo sent to employees, the U.S. online e-commerce giant said the maximum base salary for all white-collar employees would be sharply raised from the previous $160,000 to $350,000. The base salary is usually only part of the total compensation of the company's employees. This figure does not include restricted stock and other cash, such as signing bonuses.
At the same time, Amazon also said that the salary adjustment is not limited to U.S. companies, and the memorandum mentions that the salary adjustment will cover most of its positions around the world.
"The labor market has been extremely competitive over the past year, and after a thorough analysis of the various options, weighing the economics of our business against the need to remain competitive to attract and retain top talent, we have decided to make a significant increase in our compensation levels and outpace the usual year's increases," the internal memo said.
Historically, Amazon has previously kept its base salary below that of its peers. The sharp salary increase is expected to bring Amazon's base salary in line with or even higher than other big tech companies, including Google, Meta, Apple and Microsoft.
The U.S. labor market is now more competitive than ever, especially at a time when the COVID-19 pandemic is giving employees more leverage to demand better benefits and pay. More and more companies are also experimenting with more flexible work arrangements, such as remote or mixed work. This has led Amazon and other tech companies to admit that if they don't offer these benefits, they could hurt their ability to attract or retain talent.
Difficulty for the people: prices are soaring, and if you don't give a salary increase, you will jump ship
In a sense, the sharp salary increases of European and American companies are forced by the embarrassing reality of brain drain and lack of manpower. However, for ordinary European and American wage earners, in the face of soaring prices, what can they do if they do not ask for a salary increase?
As of December, although the increase in hourly wage data in the United States was close to 5% at the time, the real inflation-adjusted wage increase was still negative, the data showed.
The only industries in the U.S. where wages grew faster than inflation last year were leisure and hospitality, where workers typically earn the lowest hourly wages of any industry. Employees in the industry got an average 14 percent raise last year, with hourly wages rising from around $17 an hour to more than $19.50.
Meanwhile, a new poll this month shows that more than half of U.S. employees are now preparing to pressure their employers for a pay rise. According to a nationwide survey conducted by The Harris Poll for Bloomberg News, about 55 percent of respondents said they might look for job offers from other companies to force current companies to give them a raise.
Nearly two-thirds also said they would quit their current jobs if they got better outside positions. Millennials are most likely to jump ship, followed by Gen Z, Gen X and Baby Boomers. Among employees who may be asking for a raise soon, almost all say inflation is a factor in their decisions, and most cite the current economic environment.
Fiona Cincotta, a senior financial markets analyst at city index, a financial services firm, said, "The decision has clearly shifted to employees. The labor market is very tight and they are indeed gaining the upper hand in the [wage] negotiations. ”
In Germany, the new German government, which came to power only last year, plans to raise the minimum hourly wage to 12 euros an hour, a change that will affect about 6 million workers this year. The raise was one of Prime Minister Scholz's campaign promises. While workers welcomed the news, some employers are already under pressure from losing their businesses during the lockdown and are worried about how they will respond in the event of rising inflation.
Central Mom Difficulty: Wages Have Soared, and How to Control Inflation?
It is worth mentioning that in the face of rising wages, the public may feel excited, enterprises are unwilling, and the central bank has experienced - it is an incomparably difficult problem!
** Last Thursday, on the day the Bank of England announced the interest rate hike, Bank of England Governor Bailey's statement on wages caused an uproar in the British public opinion.
The helmsman of the world's oldest central bank went so far as to call on people to temporarily "restrain" their demand for a raise. According to him, controlling wage growth is key to controlling inflation, and a "modest wage increase" would prevent inflation from becoming entrenched.
Bailey noted in an interview that his goal is to stop inflation from spiraling with expectations of a pay rise. "We're seeing some indications that there's pressure on wages to go up in the (labor) negotiations. Labor market is tight. We really need to see wage growth dampened. ”
As soon as Bailey's remarks were exported, they were violently attacked by British trade union organizations. Sharon Graham, secretary general of Unite, Britain's largest union, said the Bank of England's call was to make workers pay.
Bailey was actually calling for a national wage cut, and workers were once again being asked to pay the price, this time with inflation and the energy crisis. Inflation is not caused by workers. Why should they be expected to be held accountable for the failure of the energy market and the utter disruption of government policy? Workers don't need the preaching of central bankers about imposing pay limits. Why do the rich have ordinary people pay for every crisis? Graham noted.
In the United States, there has been a long-standing debate about whether rising wages will exacerbate inflation. Jan Hatzius, chief economist at Goldman Sachs, said in an interview with U.S. media in late January that wage growth in the U.S. needs to slow as inflation heats up and becomes a central focus for the Fed and the market.
And after non-farm payrolls data on Friday showed that new jobs and wages rose far more than market expectations, interest rate market bets on the Fed's 50 basis point hike in March soared to 44 percent.
Many industry insiders pointed out that although the current European and American markets have not yet fallen into a situation where wages and inflation have shown a "double-digit" rise like in the 1970s, the risk of further climbing is still indispensable, and once the two present a vicious circle, it is likely to force central banks to take more aggressive tightening actions, thus bringing more uncertainty to the direction of financial markets.