Postpandemic Nominal Wage Growth: Inflation Pass-Through or Labor Market Imbalance?

RePEc Short ID: pde1396
ORCID iD: 0000-0002-4086-4626

DeLuca, Martin; Van Zandweghe, Willem

doi:10.26509/frbc-ec-202313

Journal Article

Postpandemic Nominal Wage Growth: Inflation Pass-Through or Labor Market Imbalance?

Abstract: Measures of wage growth have increased substantially during and after the pandemic compared to their average levels in the decade before. Does higher wage growth reflect compensation for a higher cost of living, brought about by an increase in inflation in the past two years? Or has an imbalance between strong labor demand and restrained labor supply lifted wage growth? Using a new empirical wage Phillips curve model, we find that the increase in wage growth largely reflects the pass-through of higher inflation and does not reflect labor market imbalances. The model forecasts a decline in wage growth to about 3 percent annually by 2025.

Keywords: labor economics; inflation; Phillips curve;

https://doi.org/10.26509/frbc-ec-202313