US wage growth has likely passed its peak and is slowing despite strong demand for workers

Karen Dynan (PIIE) and Wilson Powell III (Harvard Kennedy School)

US wage growth has likely passed its peak and is slowing despite strong demand for workers


There are signs that the pace of wage growth in the United States may have passed its recent peak. Overall growth in private-sector earnings has retreated from 2021 levels, and earnings growth has slowed, even in industry sectors that continue to have high rates of vacant positions.

After adjusting for changes in the composition of employment, the 12-month change in average hourly earnings fell from 5.6 percent in April to 5.3 percent in May, and the 6-month change showed a similar decline. The 3-month change increased to 4.6 percent from 3.8 percent (as February's unusually low earnings growth dropped out of the average), but it remains well below its 2021 peak of over 7 percent. Wages are still growing faster than before the pandemic, but they appear to be decelerating.

In late 2021, sectors with higher rates of job openings were experiencing faster wage growth than other sectors. Recently, however, firms appear less inclined to raise wages to fill vacant positions, and that relationship has now weakened. This suggests that, while labor demand remains high, firms are less desperate to fill openings, perhaps because of concerns that demand for their products may soon fall if the Federal Reserve raises interest rates.

While slower wage growth may be a welcome development for firms, more workers will struggle to keep up with inflation and rising costs of living.

This PIIE Chart is based on Karen Dynan and Wilson Powell III's blog post, Strong US jobs report for May should not change Fed plans.

Produced and designed by Nia Kitchin and Oliver Ward.

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