Slower wage growth, inflation could spell trouble for employee earnings

Employers added more jobs than expected in March, adding 178,000 jobs. That’s a marked improvement from the previous month, when employment declined by 133,000 roles.

But the Bureau of Labor Statistics’s latest jobs report painted a less than rosy picture for worker wages, as average hourly earnings rose just 0.2% between February and March, the slowest rate in nearly five years.

This slowdown could leave workers more exposed as rising oil prices and other inflationary pressures threaten to erode already modest pay gains, economists said. It also signals workers are likely to stay put in their current jobs, as they’re not well positioned to see a salary bump from switching.

Inflation bites. Average hourly wage growth grew by 3.5% YoY in February, below what analysts had expected. This metric has been declining steadily since March 2022, when workers’ average hourly earnings rose by nearly 6% from the previous year.

Higher inflation could dampen wages even further, Joseph Brusuelas, chief economist and principal with RSM US, wrote on LinkedIn.

Gas prices, on average, have risen above $4 a gallon since the US and Israel went to war with Iran in late February, disrupting energy flows through the Strait of Hormuz, a passageway for about one-fifth of the global oil supply. Even if a ceasefire helps the strait reopen, experts say it will take at least months for energy shipments to normalize, the New York Times reported. Economists surveyed by Bloomberg last month said they expect US inflation to rise by an average of 3.1% this year, up from 2.6% previously.

Such projections are bad news for real wages, which refers to how earnings stack up against inflation.

“As the topline inflation caused by the oil shock shows up in the data in coming [months] that means at best one will observe a slowing in real wage growth if not an outright decline which will damp consumption and overall economic activity in the second quarter of 2026,” Bursuelas said in his post.

Should workers stay or should they go? The March data suggests worker leverage will decline, especially in the face of “stubborn inflation,” Nicole Bachaud, labor economist with ZipRecruiter, told HR Brew. “There’s less of a pay premium for switching, which is keeping more people locked into place, keeping turnover low, and creating this perpetual cycle of stalled activity across the labor market.”

Whereas changing jobs could make a significant difference for workers’ earnings back in late 2022 and early 2023, that pay premium looks much smaller today, according to data from the Federal Reserve Bank of Atlanta. US workers saw their median hourly pay rise by 7.7% if they changed jobs in early 2023; as of this past February, job switchers saw a 4.4% average pay bump, compared to a 3.9% increase for those who stayed in their jobs.