Labor Shortage Worsens in the US; Rising Wages Set to Drive Inflation Higher

The labor shortage crisis is worsening in the US and prompting speculation of much higher inflation in near future, revealed new research. The US is facing a shortage of 4.6 million workers, which is the worst since the World War II period, Goldman Sachs economists led by Jan Hatzius revealed in an analyst note to the clients.

The employers in the US are expected to face a tougher and expensive year in finding the workers as the market is turning increasingly competitive in hiring new workers. It will lead to a nearly 5 percent surge in wages in 2022 as employers in the US hunt for talent.

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A customer counts his U.S. dollar money in a bank

Following the jump in need of workers, Americans' income is also on the surge across the board as the competitive market forces employers to hike wages.

But economists have warned that the surge in the wages could result in a jump in inflation as consumer prices already surged 7.5 percent in January, the fastest pace since February 1982.

Wage-Price Spiral

However, the rising wages and high inflation are also endorsing a possibility of a wage-price spiral, reminding of 1970s when high inflation had resulted wages hike, leading to more spending and expensive prices.

But a top federal official has rejected the speculations over the wages spiral saying out-of-control wages hike are being closely monitored by the policymakers.

Federal Reserve Chairman Jerome Powell also maintained that the central bank is widely expected to hike interest rates for the first time in three years during their meeting next month to combat the price surge.


Wages Not Big Part of High Inflation

In December, Powell had also said that wages are not a big part of the high inflation as economists have mentioned. "We do not see this yet, but if you had something where real wages were persistently above productivity growth, that puts upward pressure on firms and they raise prices."

Currently, the labor force in the US is short of 9,00,000 where it stood before the pandemic. It comes as earlier this month the Labor Department found that there are 10.9 million open jobs.

Earlier, before the coronavirus pandemic began in February 2020 the highest number of open jobs on record was 7.7 million.