Pay increases for low-wage workers are staying ahead of rising costs, and that’s helping them catch up with the rest of the workforce

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Average employee compensation is up 4.2% in the last 12 months, but costs are rising faster.Workers in lower-wage sectors like hotels and restaurants are seeing above-average pay gains.The combination is squeezing employers now, but could actually lead to a better deal long term.Get a daily selection of our top stories based on your reading preferences.

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Email address By clicking ‘Sign up’, you agree to receive marketing emails from Insider as well as other partner offers and accept our Terms of Service and Privacy Policy .American workers have seen larger compensation increases in the past 12 months than they’ve seen in years, but many have actually slid behind due to rising prices on everything from appliances, to beef, to cars.

Wages and salaries have gone up 4.2% since September 2021, according to the latest US government figures, but that has not kept pace with inflation , which last clocked in at 5.4%.

What that means is the average worker has about 1.2% less spending power this year, rather than the 1.2% more they might have had if inflation remained at the long-term trend of about 3%.

All of these numbers are averages, of course, and a closer look at the data reveals a very interesting picture: workers in typically lower-wage sectors are beginning to catch up with the rest of the workforce.

Leading the pack by a wide margin is the restaurant and hotel sector, which has been utterly battered by the pandemic and businesses’ struggle to hire and retain workers.

Wages in accommodation and food services are up 7.2% since last September, putting those workers well ahead of inflation’s rising tide.Retail and other service workers were also able to stay just ahead of rising prices in the economy.

Taken together, the gains by lower-wage workers and the lost ground by higher earners are helping close the gap that had many people juggling multiple sub-minimum wage jobs in order to keep food on the table and a roof overhead.

Although most restaurants are still allowed to pay less than the Federal minimum wage of $7.25 per hour, more companies than ever are now offering starting wages of at least $15, signalling a major shift in how the industry is hoping to attract workers.

The increased expense is certainly putting a squeeze on employers, many of whom were already operating on razor-thin margins.

Even Amazon saw its third-quarter profits cut nearly in half due largely to increased labor costs.It’s also worth noting that rising wages aren’t the only thing making prices go up right now.Semiconductors are hard to come by, supply chains are all twisted, consumer spending is on a tear, and the pandemic is still very much with us.

But better pay for those at the bottom of the income scale could actually lead to a better deal for everyone, including some of the businesses who are struggling to make the math work now.

One thing that financial data following the federal relief and stimulus payments shows is that people didn’t just squirrel the money away.They used it to pay off debts, start new businesses, and buy lots of goods and services.(Amazon may have been less profitable than usual, but it still set a new third-quarter sales record.)

In other words, people are going to spend the money they earn, and that is going to create a whole new set of opportunities for workers and companies alike.

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