According to a recent survey conducted by the Federal Reserve Bank of New York, the wage floor for American workers has reached a record high of nearly $79,000. This significant increase is a clear indication that workers are demanding higher salaries and benefits as they navigate the current job market.
What is the Average Reservation Wage?
The average reservation wage refers to the lowest annual pay that workers would accept to take a new job. In July 2023, this figure stood at $78,645, up from approximately $72,900 in July of the previous year and $69,000 in July 2021.
Pay Expectations among Women on the Rise
The survey revealed that pay expectations among women in the labor force have increased by a staggering 11% over the past year. This growth rate is twice as fast as that experienced by men, indicating a significant shift in the job market. However, there still exists a substantial gender gap when it comes to acceptable salaries. The average reservation wage for men was approximately $91,000, while women’s expectations were lower at around $66,000.
Educational Background and Wage Expectations
Interestingly, workers with a college degree now expect an annual salary of $98,600 to accept a new job, compared to those without a degree who anticipate earning around $63,300. This disparity highlights the value placed on educational attainment in the modern workforce.
Comparison to Median Household Income
For context, the median U.S. household income was reported to be $70,784 in 2021 by the U.S. Census Bureau. It will be interesting to see how this figure evolves when the 2022 data is released next month.
Impact of Labor Market on Retirement Plans
The New York Fed survey also provided insight into workers’ expectations regarding retirement. The average expected likelihood of receiving multiple job offers in the next four months decreased from 25.7% to 20.6%. This slowdown could indicate a decrease in labor market activity.
Earlier Retirement and Labor Pool Shrinking
One piece of concerning news for employers is that U.S. workers increasingly see the prospect of earlier retirements, suggesting the pool of available labor could shrink. The average expected likelihood of working beyond age 62 declined to 47.7% from 48.8% in July 2022, representing a new low since the series began in March 2014 and down by more than a percentage point over the past year.
Possible Reasons for Declining Labor Participation
Those data could suggest that older people view the labor market as unappealing or that the pandemic made them think about retirement. The reservation wage for individuals whose household income is below $60,000 peaked one year after COVID-19 was declared a pandemic and has since fallen by more than $3,000 while the figure for higher earners continued to rise.
Conclusion
The record-high wage floor of nearly $79,000 marks a significant shift in the job market. Workers are increasingly demanding higher salaries and benefits as they navigate the current economic landscape. However, this trend also raises concerns about labor market activity and the potential shrinking of the available workforce.
