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Wage developments during and after the high inflation period

Author

Listed:
  • Bates, Colm
  • Bodnár, Katalin
  • Healy, Peter
  • Roca I Llevadot, Marc

Abstract

This article describes developments in wage indicators during and after the high inflation period. It illustrates that, following high volatility during the pandemic, all wage indicators recorded levels well in excess of historical averages in 2023-24. The drivers of wage growth, namely inflation, labour market tightness and productivity growth, also developed differently from how they have developed in the past, and there is a need to reassess how they are reflected in wage developments. Using the augmented wage Phillips curve we find that the inflationary shock was the main driver of wage growth dynamics in the period under investigation, while labour market tightness supported workers in recovering real wage losses. We illustrate the link between wage growth and inflation in the euro area through the lens of the Bernanke-Blanchard model. ECB wage tracker data confirm the important role of catching up in recent wage growth and point to labour market institutions having a strong role in the speed of pass-through of prices to wages. Meanwhile, wage pressures are expected to ease as real wage catch-up becomes less significant and labour demand eases. JEL Classification: E24, J30, J52

Suggested Citation

  • Bates, Colm & Bodnár, Katalin & Healy, Peter & Roca I Llevadot, Marc, 2025. "Wage developments during and after the high inflation period," Economic Bulletin Articles, European Central Bank, vol. 1.
    • Handle: RePEc:ecb:ecbart:2025:0001:2
    Note: 2881411
    as

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    More about this item

    Keywords

    compensation per employee; wage Phillips curve; wages;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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