A Measure of Trend Wage Inflation

Almuzara, Martín; Audoly, Richard; Melcangi, Davide

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A Measure of Trend Wage Inflation

Abstract: We extend time-series models that have so far been used to study price inflation (Stock and Watson [2016a]) and apply them to a micro-level dataset containing worker-level information on hourly wages. We construct a measure of aggregate nominal wage growth that (i) filters out noise and very transitory movements, (ii) quantifies the importance of idiosyncratic factors for aggregate wage dynamics, and (iii) strongly co-moves with labor market tightness, unlike existing indicators of wage inflation. We show that our measure is a reliable real-time indicator of wage pressures and a good predictor of future wage growth.

Keywords: wage inflation; persistence; factor models;

JEL Classification: C33; E24;