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Productivity Improvements and Markup Normalization Can Support Further Wage Gains without Inflationary Pressures

Author

Listed:
  • Vaishali Garga
  • Giovanni P. Olivei
  • J. Christina Wang

Abstract

Wage inflation remains higher than it was before the onset of the COVID-19 pandemic, raising concerns that it could hinder progress toward a return of price inflation to the Federal Reserve’s 2 percent target. The impact of wage inflation on price inflation, however, cannot be considered independently of the behavior of productivity and firms’ markups. In that context, there are scenarios in which wage inflation could stay above trend for a few more quarters without contributing to higher price inflation.

Suggested Citation

  • Vaishali Garga & Giovanni P. Olivei & J. Christina Wang, 2024. "Productivity Improvements and Markup Normalization Can Support Further Wage Gains without Inflationary Pressures," Current Policy Perspectives 2024-5, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbcq:98463
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    More about this item

    Keywords

    wage inflation; productivity;

    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
    • E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other

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