Supply and demand for workers may be becoming less central to US wage growth

Karen Dynan (PIIE) and Wilson Powell III (Harvard University)


The September US employment report signaled the labor market has cooled from earlier in 2022. The economy added 263,000 jobs, down from the average gain of 444,000 in the first half of 2022. Wage growth is slower than in the beginning of the year, but it has plateaued in recent months and remains above pre-pandemic levels.

Six months ago (March 2022 in blue), more industry job openings were associated with considerably faster wage growth, suggesting that patterns of supply and demand for workers were playing an important role in driving wage growth earlier in the pandemic recovery. In September (red), however, that relationship was much weaker; the difference in wage growth between industry sectors with many job openings and those with few job openings was much smaller.

The weaker role of worker supply and demand in rising wages could mean some of the faster-than-usual wage growth has become embedded in the economy. If worker demand isn’t a major factor in rising wages, it may indicate wage dynamics are being shaped by a general need to “keep up” with broader inflation, making inflation more difficult to tame.  

This PIIE Chart is based on Karen Dynan and Wilson Powell III’s blog, Job growth has slowed but the US labor market is still tight. Produced and designed by Nia Kitchin and Oliver Ward.

More From

More on This Topic

Related Topics