Wage Growth vs. Inflation
The reason we have inflation is that, in this tight labor market, workers are demanding higher pay and they’re getting outrageous raises. Right?
Actually, the numbers show that, even though there does seem to be a shortage of workers in a number of industries, employers are still getting a bargain with their labor costs.
There are several ways to measure this, but the simplest is to compare the growth of wages with the inflation rate. Since April of 2021, inflation has averaged 4.2% while wages, across the economy, have grown by just 3.2%. Another way to look at the situation is to compare the inflation rate since the Great Recession with the growth in average hourly earnings, here, we find a persistent lag. At present there is no sign that the gap is closing.
The point of this is that wage growth has not been a driver of inflation, and in fact, it has functioned as a moderating influence. That may change in the future, but this is something to keep in mind when you read that the Federal Reserve Board is concerned about ‘structural inflation’—meaning a spiral relationship between higher wages, leading to higher production costs, leading to higher prices, and on and on and on. Inflation is stubbornly persistent, but workers don’t seem to be the cause of it.
Written by Bob Veres
Sources:
https://www.epi.org/nominal-wage-tracker/?
https://www.bls.gov/blog/2023/more-ways-to-look-at-wages-and-inflation.htm