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Regional Matters

January 6, 2022

Rising Wages and Increased Hiring Two Years Into the COVID-19 Pandemic

For the past few years, the Richmond Fed has collected information from businesses on hiring plans and changes in wages to recruit and retain workers. The results from the 2021 survey indicate that a much larger share of businesses plan to increase employment compared to recent years, both because they expect strong sales and because their current workforce is overworked. Additionally, this year, a larger share of firms reported raising wages across the board to attract new workers.

Survey Results

According to results from the November 2021 survey, more than half of Fifth District responding firms (56 percent) planned to increase employment in the next 12 months — the highest share in recent years and a significant increase from last year when only 34 percent of firms indicated that they would increase employment. The only other year when more than half of firms said they planned to increase employment was in 2017 when 53 percent expected to add staff.

In the 2021 survey, high expected sales growth was cited most often as the most important reason for increasing employment. The second most selected reason was overworked staff; the share of firms that chose overworked employees as the most important reason for increasing employment more than doubled from last year — 25 percent in 2021 compared to 10 percent in 2020. In fact, prior to 2021, the highest that share has ever been was 13 percent in 2019. Perhaps this response from firms is not surprising: Recent data from the Bureau of Labor Statistics show that the average number of hours worked per week has increased to record highs in 2021.

Firms in our monthly business surveys have been reporting strong demand for workers and difficulties filling open positions for several months. The primary challenge firms had filling open positions was a lack of qualified applicants. This is consistent with our monthly indexes that measure the availability of workers with the skills that firms need. Those indexes have reached and stayed at historic lows since the beginning of the pandemic in both the manufacturing and service sector surveys, indicating that a rising share of firms are struggling to find workers with the necessary skills. The second most selected issue in the 2021 survey was that applicants rejected job offers because the compensation was too low.

Compared to our 2020 survey, in 2021, more firms reported that they are raising starting wages for most job categories. The percentage of firms that are raising starting wages for most job categories doubled from 30 percent in 2020 to 61 percent in 2021. Only seven percent of firms in 2021 indicated that they are not raising starting wages for any job category compared to 27 percent in 2020. 

Firms also indicated that the hardest-to-fill job openings are the ones with the fewest educational requirements. Almost three in four firms with difficulty hiring cited it was especially hard finding workers for jobs that require a high school degree or less.

Conclusion

The latest survey results show that more firms are expecting to increase employment in the next 12 months than in previous years — if they can find the workers. A large share of firms stated that the lack of qualified applicants is the main reason they are unable fill open positions, and those positions that were hardest to fill only required a high school education. To attract workers, more firms than ever are increasing wages. As we enter our third pandemic year, we will continue to monitor how labor markets, and the steps taken by employers to attract workers, evolve.

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