A Measure of Core Wage Inflation

Abstract: We recover the persistent (“core”) component of nominal wage growth over the past twenty-five years in the United States. Our approach combines worker-level data with time-series smoothing methods and can disentangle the common persistence of wage inflation from the persistence specific to some subgroup of workers, such as workers in a specific industry. We find that most of the business cycle fluctuations in wage inflation are persistent and driven by a common factor. This common persistent factor is particularly important during inflationary periods, and it explains 80 to 90 percent of the post-pandemic surge in wage inflation. Contrary to standard measures of wage inflation, the persistent component of wage inflation contemporaneously co-moves with labor market tightness.

Keywords: wage inflation; persistence; factor models;

JEL Classification: C33; E24;

Access Documents

File(s): File format is application/pdf
Description: Full text

File(s): File format is text/html
Description: Summary


Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2023-07-01

Number: 1067

Note: Revised January 2024.