Inflation can erode the real value of wages over time, meaning purchasing power will be reduced, and workers will not be able to buy as much with their wages as they could before.
Editor's note: This article was originally published on May 25, 2023. It has since been updated.
Inflation has a significant impact on pay gaps and housing crises. Inflation refers to the rate at which the general price of goods and services in an economy increases over time, and the purchasing power of money decreases, meaning that each dollar buys fewer goods. In the context of job pay, it can deteriorate the real value of wages over time, meaning the purchasing power of workers will be reduced, and they will not be able to buy as much with their wages as before. To highlight the effect of inflation on the job market, a user on Reddit (u/Benjamin5431) shared a shocking revelation that left many people with questions and worries about the future regarding inflation.
"A lot of my older co-workers have huge houses that they bought decades ago while working the same job I am currently doing," said the user. The Reddit user shared that they worked two jobs so that they could pay for rent which cost $1800 for an 800 sqft apartment. When talking with older co-workers in the company, the user added that they were baffled as to why they were paying such an exorbitant rent price, adding that the co-workers thought the Reddit user lived in a mansion in that money. "He didn't believe me, so I showed him on my phone what all the apartments are going for in our town, and he was like "My mortgage is half that on a 4br house,'" the user wrote.
Owning A Home Helps Protect Against Inflation— Altitude Homes (@AltitudeHomes) May 24, 2023
You’re probably feeling the impact of high inflation?
If you’re a renter, you’re likely experiencing it a lot as your rent continues to rise.#Buyers #RisingRent #FixedRateMortgage #RealEstateTips #AltitudeHomes pic.twitter.com/JCIZQKmoZX
They added, "He showed me pics of his house, and it was huge and pretty decent, I looked it up on Zillow, and it's worth $400 000. He bought it decades ago when it was around $100k." That fact would be unnerving for anybody to hear, and the worst part is that inflation will only worsen in a few years. It is a small step, but over time, it can add up and have a daunting impact on consumers' purchasing power. If income does not increase at the same rate as inflation, then people will buy fewer services with their money in due course of time. The Reddit user noted, "All my co-workers talk about the housing crisis a lot, and all the older guys who have been working there for 20-30 years all said they bought houses in their early 20s thanks to this job."
The user concluded the post by sharing, "I have the same job they did, the same position, and I will never be able to afford even a starter home," adding, "The American dream is dead." According to Statistica, "In 2021, the U.S. home sales in the United States surged, reaching the highest value observed since 2006. A total of 6.1 million housing transactions were completed in that year, up from 5.6 million in 2020. According to the forecast, sales activity is expected to slow down slightly in 2022 and increase again in 2023."
As reported by HomeLight, "Last year's home sales raced to the highest numbers since 2006. As inflation burns into consumers’ savings, it may cause them to think twice about buying a home. That could cause the real estate market to slow down, or at least pull back from its recent tear." Additionally, inflation affects the housing market through interest rates. As inflation skyrockets, central banks raise interest rates to simmer down the economy and prevent prices from rising too quickly. High interest rates make buying a house more expensive as the cost of borrowing increases.
People resonated with the Reddit user in the comment section and shared similar instances. "My husband and I make way more than they ever did with our professional jobs and we cannot afford that starter home today even in our 40s, can’t outsave how fast prices have gone up," said u/orangefreshy. "Owning a home used to be the quickest path to the middle class, now that's becoming impossible for many people," added u/Zealousideal. "I took over my parent's house when they moved out. I currently make more than they did combined when they bought this house in 94. I could not afford this house now at its current price. I also have a degree where neither of my parents has anything past HS," added u/GhostPartical.