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Nominal Wage Adjustments during High Inflation and Tight Labor Markets

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  • Maximiliano Dvorkin
  • Cassandra Marks

Abstract

The U.S. economic recovery after COVID has been characterized by relatively high inflation and low unemployment. At the same time, average wages increased at a rapid pace during this period, faster than in previous years. Grigsby, Hurst, and Yildirmaz (2021) study nominal wage rigidity in the United States and document that before the pandemic, wage declines were rare and over 35 percent of workers would not receive a wage increase year over year. Given the larger-than-usual aggregate wage growth in the aftermath of the pandemic, we revisit these results and study the frequency and the magnitude of individual wage changes in a context of high inflation and tight labor markets. We find that individual wages increased more frequently and by a larger amount post-2021, but the pace and frequency of the increases moderated somewhat in 2023 compared to the previous year.

Suggested Citation

  • Maximiliano Dvorkin & Cassandra Marks, 2024. "Nominal Wage Adjustments during High Inflation and Tight Labor Markets," Review, Federal Reserve Bank of St. Louis, vol. 106(10), pages 1-19, October.
    • Handle: RePEc:fip:fedlrv:99026
    DOI: 10.20955/r.2024.10
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    References listed on IDEAS

    as
    1. John Grigsby & Erik Hurst & Ahu Yildirmaz, 2021. "Aggregate Nominal Wage Adjustments: New Evidence from Administrative Payroll Data," American Economic Review, American Economic Association, vol. 111(2), pages 428-471, February.
    2. A. W. Phillips, 1958. "The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957," Economica, London School of Economics and Political Science, vol. 25(100), pages 283-299, November.
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    More about this item

    Keywords

    inflation; unemployment; wages; labor markets; COVID-19;
    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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