Inflation tax bites workers


Elise Amendola/Associated Press

Friday’s headlines indicated that workers’ compensation rose at a record pace in the first quarter of this year, according to the Labor Department. It would be nice if it weren’t for the inflation that wipes out these huge nominal gains.

Wages and salaries rose 5% for private workers in the 12 months to March, and benefits rose 4.1%. Private employers pay far more to retain workers, who have bargaining power amid a labor shortage.

That sounds better than it is, however, because inflation has wiped out the purchasing power of those increases. Inflation-adjusted private wages and salaries fell 3.3% for the 12 months ending March, and inflation-adjusted benefits fell 4%. Employees earn more, but they can buy fewer goods and services with it. This is what economists mean when they call inflation a tax.

A separate report on Friday, from the Commerce Department, found that real personal disposable income fell 0.4% in March and has fallen in five of the past six months. To express this in dollars, in April 2021, per capita disposable income was $48,641 in chained 2012 dollars. By March of this year, that amount had fallen to $45,997, a drop of $2,644. Ouch.

To adapt Ronald Reagan, are you better off than a year ago?

Summary and Outlook: What began as a row over parental rights legislation resulted in the loss of special privileges for the Walt Disney Company in Florida and served as a wake-up call for other CEOs. Images: Reuters/AP/Miami Herald Composite: Mark Kelly

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Appeared in the April 30, 2022 print edition as “The Inflation Tax Bites”.


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