Inflation has outpaced wage growth in most industries over the past 12 months, leaving many workers with lower wages once adjusted for inflation—or real wages.
Only the leisure and hospitality, information, and transportation and warehousing sectors have seen wages grow faster than the personal consumption expenditures (PCE) inflation rate of 5.9 percent. Together these industries employ just 20 percent of the US private sector workforce. Wage growth in the construction and utilities sectors has roughly kept pace with inflation, but the remainder of US private sector workers are in industries where pay increases have fallen short of price increases.
The November employment report shows some signs of realigning supply and demand in the labor market, but the labor market remains very tight with key measures of tightness such as job vacancies and the quits rate remaining well above historical levels. To create more slack, the Federal Reserve will need to continue tightening financial conditions until it can be confident it has restrained inflation.
This PIIE Chart is based Karen Dynan and Wilson Powell III’s blog post, US job and wage growth beat expectations, making the Fed's job harder. Produced and designed by Nia Kitchin and Oliver Ward.