Will the Moderation in Wage Growth Continue?

Richard Audoly, Augustin Belin, Martin Almuzara and Davide Melcangi

No 20240307, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Wage growth has moderated notably following its post-pandemic surge, but it remains strong compared to the wage growth prevailing during the low-inflation pre-COVID years. Will the moderation continue, or will it stall? And what does it say about the current state of the labor market? In this post, we use our own measure of wage growth persistence – called Trend Wage Inflation (TWIn in short) – to look at these questions. Our main finding is that, after a rapid decline from 7 percent at its peak in late 2021 to around 5 percent in early 2023, TWin has changed little in recent months, indicating that the moderation in nominal wage growth may have stalled. We also show that our measure of trend wage inflation and labor market tightness comove very closely. Hence, the recent behavior of TWIn is consistent with a still-tight labor market.

Keywords: wage growth; persistence; industries (search for similar items in EconPapers)
JEL-codes: E01 (search for similar items in EconPapers)
Date: 2024-03-07
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