Despite Big Raises, Typical U.S. Worker Lost Money Last Year Due to Soaring Inflation

Despite historically high raises averaging 4.7 percent last year—a development that brought hourly wages to a record peak of $31.31—the typical American worker actually lost ground financially in 2021 due to soaring inflation. As prices for food, gas and other goods and services climbed at their fastest clip in nearly 40 years, those big pay hikes, in real terms, turned into the equivalent of a 2.4 percent pay cut for the typical private-sector employee, according to the Bureau of Labor Statistics.

Only one industry, leisure and hospitality, gave wage bumps that beat last year's sharp rise in consumer prices, with an average 14 percent increase to $19.57 an hour in 2021. That's about double the 7 percent hike in the Consumer Price Index. It was the largest pay hike in a 12-month span of any industry on BLS records.

2021 industry wage increases
Only one industry, leisure and hospitality, gave wage bumps that beat inflation last year, with a 14 percent increase to $19.57 an hour. Angelina Bambina/Getty Images

Average raises in the other 13 industries tracked by the BLS all failed to beat inflation. Coming closest: Professional and business services, which includes a diverse range of professions including accountants, lawyers, architects, graphic designers, management consultants, janitors, advertising agency workers, office administrators and call center workers, who collectively saw an average bump of 6.2 percent to $37.81 an hour. Workers in the transportation and warehousing and retail trade industries also saw above-average gains in the 5 percent range.

Overall, despite the erosion factor of inflation, the wage gains are still well above average historically, economists say. That's largely due to how tight the labor market has become as the pandemic drove more workers into retirement; forced parents, particularly mothers, to exit the workforce or scale back hours to care for young children at home; and other workers opted to forgo certain kinds of roles over COVID-related health concerns.

"Employers are pulling out all the stops to attract workers," says Julia Pollak, chief economist at ZipRecruiter, an online employment marketplace. "Historically, we've seen 2.4 unemployed people per job opening at any one time on average, but now it is 0.6 unemployed people per opening. Businesses are fighting a war for talent."

2021 Wage increase by industry

Lowest Paid, Biggest Raises

Overall, lower-wage workers saw the biggest pay bumps by far. The leisure and hospitality industry, where average hourly wages are the lowest among the 14 sectors tracked by the BLS, rewarded its non-management restaurant, bar, hotel, museum, amusement park, sports arena and casino workers with even bigger raises than managers, hitting nearly 16 percent.

While a combination of factors led to this perfect storm of massive wage changes for leisure and hospitality workers, according to economists, one of the most prominent was that the pandemic afforded them greater choice just as their roles became less pleasant.

Thanks to three rounds of stimulus payments, increased unemployment benefits, monthly child tax credit payments and other government aid offered during the past two years, many lower-wage workers were able to amass a savings cushion that gave them "some breathing room to pass on truly terrible job opportunities and look for something better," says Josh Bivens, director of research for the Economic Policy Institute, a left-leaning nonprofit think tank.

And many workers did pass on jobs in the leisure and hospitality sector or demanded more money to perform them as conditions worsened and the industry became less profitable due to capacity caps.

"These public-facing jobs came with health risks as well as nuisance factors, like restricting the number of people entering a restaurant, enforcing mask mandates, and increasing sanitization," says Pollak. "Customers too became more ornery, with higher cases of assault and abuse of these workers. It's not a place many want to be."

In an already high-turnover industry, this put even greater pressure on restaurants, hotels, bars, and attractions to sweeten their hourly rate to find workers.

Three other industries also provided their non-management employees with inflation-beating raises last year. The professional and business services industry gave an average 7.3 percent pay boost, while the transportation and warehousing industry's standard worker saw their hourly rate jump 8.4 percent. And those working in retail, which has the second-lowest pay of all industries, nabbed bumps of just under 7 percent.

Another reason wages in these industries, as well as in hospitality and leisure, jumped so much this year could be due to the growing $15 minimum wage movement, which saw companies like Sam's Club and Walt Disney World join its ranks in 2021. It provides a new kind of wage floor far above the federal rate of $7.25 an hour—a rate that has remained the same since 2009—and forces other surrounding businesses to also raise pay to in order to compete for staff, says Paula Voos, a professor of labor studies and employment relations at Rutgers University.

Those that didn't fare so well in 2021, earning below-average pay bumps, were actually the second highest-paid group. The information industry, which includes jobs in book and software publishing, motion picture and sound recording, telecommunications and data processing, only saw a 2.4 percent increase to $45.36 an hour, on average. While it wasn't the industry's lowest raise, it was historically small for a group that routinely pays out 3 percent or more and topped 7 percent at the start of 2019.

Looking ahead to 2022, economists expect wages will continue to rise, though likely at a slower rate than they did this past year; whether it will be enough to top inflation remains to be seen. U.S. employers are already planning to increase their budgets for salary bumps by 3.9 percent this year–the highest change since 2008, the Conference Board Salary Increase Budget Survey revealed, largely because of attracting new hires and inflation-driven cost-of-living adjustments.