The recent compression of US wage inequality: tightness, turbulence, and power-biased policy

Adam Aboobaker () and Peter Skott
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Adam Aboobaker: WITS - University of the Witwatersrand [Johannesburg], University of Manchester [Manchester], WIL - World Inequality Lab, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris

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Abstract: Expansionary fiscal policy and tight post-pandemic labour markets have been seen as correctives to decades of macro-policy that contributed to rising inequality in the US. Reviewing the evidence for and against this perspective, our findings accord with studies that show labour market conditions as an important determinant of nominal wage dynamics. However, the dramatic compression of wage inequality during the recent pandemic and its aftermath was driven primarily by special circumstances, including power-biased policy intervention. Moreover, we caution against interpretations that extend the cyclical relationship between labour market tightness and wage inequality to the long run.

Keywords: Wage inequality; business cycles; fiscal policy; COVID-19 (search for similar items in EconPapers)
Date: 2025-08
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Working Paper: The recent compression of US wage inequality: tightness, turbulence, and power-biased policy (2025)
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