The recent report from the New York Federal Reserve sheds light on a significant development in the American labor market: workers are now demanding record-high wages to even consider switching jobs. This revelation, gleaned from the New York Fed’s Survey of Consumer Expectations, underscores a notable shift in the dynamics of employment negotiations and highlights the evolving landscape of labor market conditions.
According to the survey, the average reservation wage—defined as the lowest wage at which workers are willing to accept a new job—reached an unprecedented level of $81,822 in March. This substantial increase represents a significant uptick from the previous report in November 2023, where the average reservation wage stood at $73,391. This surge in reservation wages is particularly noteworthy among specific demographic groups, including men, individuals aged 45 and under, and those with household incomes exceeding $60,000.
Concurrently, the report also notes a decline in worker satisfaction with both wage and non-wage compensation during the same period. This decline, totaling 3.1 and 3.7 percentage points, respectively, suggests a growing misalignment between worker expectations and the compensation packages offered by employers. Notably, however, satisfaction with promotion opportunities remained relatively stable, indicating a nuanced picture of worker sentiment in the face of evolving labor market dynamics.
The observed increase in reservation wage demands can be attributed to various factors, including ongoing inflationary pressures and tightening labor market conditions. These trends reflect the broader economic landscape characterized by shifting supply and demand dynamics, as well as changing expectations among both workers and employers.
Despite the surge in reservation wages, the report reveals a contrasting trend in job offers extended by employers. In March, the average job offer was lower compared to previous months, with the average offer standing at $73,668, down from $79,160 in November. This discrepancy between worker demands and employer offerings underscores the complexities of labor market negotiations amidst evolving economic conditions.
Furthermore, the report highlights a notable increase in job search activity, with over 25% of individuals reporting actively seeking employment—a figure not seen since March 2014. This heightened job search activity is driven by various demographic groups, including men, respondents over the age of 45, and individuals without a college degree.
Despite increased job search activity, the percentage of respondents receiving one or more job offers saw a slight decrease, indicating potential challenges in securing employment despite intensified search efforts. Additionally, the report found a decline in the average expected likelihood of working beyond traditional retirement ages, signaling shifting attitudes towards retirement and workforce participation.
Overall, while inflation has moderated since its peak in June 2022, Federal Reserve policymakers remain vigilant, expressing concerns about signs of accelerating inflation that could impede progress towards the Fed’s 2% inflation target. As economic data continues to evolve, policymakers will closely monitor indicators to inform their decisions on potential interest rate adjustments throughout the year, underscoring the importance of understanding and responding to the changing dynamics of the labor market.