A Measure of Trend Wage Inflation

Martín Almuzara, Richard Audoly and Davide Melcangi

Journal of Applied Econometrics, 2025, vol. 40, issue 5, 508-520

Abstract: We extend time‐series models that have so far been used to study price inflation and apply them to a microlevel data set containing worker‐level information on hourly wages. We construct a measure of aggregate nominal wage growth that (i) filters out noise and very transitory movements, (ii) quantifies the importance of idiosyncratic factors for aggregate wage dynamics, and (iii) strongly co‐moves with labor market tightness, unlike existing indicators of wage inflation. We show that our measure is a reliable real‐time indicator of wage pressures and a good predictor of future wage growth.

Date: 2025
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https://doi.org/10.1002/jae.3126

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Working Paper: A Measure of Trend Wage Inflation (2023)
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