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Wages Vs. Inflation: The Battle Continues

A little over a year ago, I wrote a post about the battle between wages and inflation. “Inflation” is the term that economists use to describe broad increases in prices. If inflation in a year is 6 percent, it means that the typical goods purchased by consumers increased in price by 6 percent. So, if the typical family spent $200 on groceries in January 2021, it would be $212 the next year. In that earlier post, I pointed out that wages roughly kept up with inflation during 2021. This fact meant that the typical worker’s ability to buy that $212 in groceries was about the same at the end of 2021 as at the beginning, when they cost $200.

But, 2022 was another year of high inflation — 6.3 percent — despite signs of recent hope. Did wages keep on keeping up with inflation, maintaining workers’ purchasing power in the face of higher prices? Or, did inflation win the battle? (In my mind, inflation is like a dragon, and wages the brave knight. Again, I’m weird.) In this quick post, I want to look across industries at how workers are doing.

(Shameless plug: know what hasn’t gone up in price? My book! Give it a look.)

Which Industries Have Fared Best?

To discern which industries’ wages have kept up with inflation, I went to my old friend the Current Population Survey. I got data on all employed workers’ wages, and also the industry in which they were currently employed. I divided workers up into 10 categories: 1) leisure and hospitality; 2) information, finance, and real estate; 3) professional services (e.g., accounting, legal services, logistics); 4) construction; 5) manufacturing; 6) transportation and warehousing; 7) wholesale and retail; 8) public administration; 9) raw materials (e.g., farming, mining) and utilities; and 10) education and social services.

Next, I identified each category’s median wage growth from January 2021 to January 2023. Then, I went to the Federal Reserve and got data on inflation over that same period. Finally, I plotted the wage growth and inflation together on the handy cart below. The chart clearly shows that some industries, like leisure and hospitality, have kept up with the 14.4 percent increase in prices over this period. Others, like education and social services have not. I knew I felt poorer!

Figure. Median Wage Growth by Industry, January 2021 – January 2023

Source: Author’s analysis of University of Minnesota IPUMS CPS, Outgoing Rotation Groups.

The good news is that some traditionally lower-income workers — in particular in leisure and hospitality — are doing quite well. The bad news is that some workers are barely keeping up, while others have lost out. Moving forward, the battle between wages and inflation is worth keeping an eye on. After all, wage growth is only meaningful if it exceeds inflation.

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