Sticky wage norms and the real wage cost of unexpected inflation
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Firms' sticky wage norms caused persistent real wage losses for 43% of job-stayers during 2021-2024 inflation.
Using ADP payroll data covering 16 million workers per month, the paper finds that most firms anchor annual raises to a modal norm that barely budged when inflation surged unexpectedly. Between 2021-2024, 43% of workers continuously employed at the same firm saw real wages decline (mean loss ~9%). Job-changers' wages tracked inflation nearly one-for-one, but switching was too rare to prevent 37% of all workers from experiencing real wage declines. Indexing firms' modal raises to inflation would have closed roughly 40% of the gap relative to pre-pandemic trend. The real wage shortfall may help explain persistently depressed consumer sentiment.
What commenters are saying
Commenters split over whether inflation was primarily driven by Biden-era policies, Trump-era stimulus, or pandemic supply shocks. Several cited the $5T in COVID stimulus (mostly under Trump) as the root cause, while others pointed to Russia's invasion of Ukraine and Biden's ARP. A correction noted that lower-wage workers made real gains due to stimulus and tight labor markets, while higher earners lost ground - contradicting the narrative of uniform hardship. One commenter observed that 63% of Americans didn't see real wage declines, questioning whether the glass is two-thirds full or one-third empty.