Wages and inflation

[Mina]

I keep hearing that wages aren't keeping up with inflation. No doubt that's true, but it doesn't automatically mean what people think it does. Real wages often rise during recessions then fall during the subsequent recovery.

That sounds counter-intuitive, but it makes sense when you look at the kinds of moves employers actually make in response to the start and end of a period of economic turmoil. When a recession starts, they often stop hiring new entry-level workers, hoping to "right size" through attrition. If a hiring freeze doesn't prove to be enough, they'll fire people, but that disproportionately hits lower-level workers. Unions, for example, tend to have last-in/first-out rules, which make sure it's the cheapest workers who get cut. Even outside that setting, companies are usually more comfortable going lean on the bottom rungs, where they can quickly staff up when the recovery comes, rather than losing "institutional knowledge" by cutting more senior workers. Plus, if you have 90 workers doing occasional overtime to get the job done, where you used to have 100 workers and no overtime, the median worker will be earning more.

You can see that in a graph of median real weekly earnings around the 2008 recession (with the recession in gray):

By the end of the recession, median workers were making far more than before the recession. And then, during the subsequent recovery, real wages fell (as junior positions were staffed up again, moving medians down).

The pandemic did the same thing, but much more dramatically. At the end of 2019, median weekly earnings were $362 (in 82-84 dollars). By second quarter, they were up to $393. That's about 8.6% increase in just six months, even as unemployment rates rose from 3.6% to 14.7%! And, of course, once the economy was recovering, real incomes fell again -- currently steady at $362... right where they were at the end of 2019.

So, it's not necessarily that inflation is eroding paychecks in real terms. A median worker today is earning just what a median worker was earning, per week, before the pandemic hit, after adjusting for inflation.... with the same unemployment rate. Real wages soared and then fell, but that seems to have been almost entirely the result of firing then rehiring disproportionately junior workers. Now that we're back to the previous unemployment level, we're also back to the previous real wage level.

 

[Integrityrespec]

Inflation is currently outpacing rising wages. It looks like it will continue to rise. The current dip in gasoline prices may be short lived as the petroleum producers have pointed out that they suspect a rise in price per barrel in September according to their forcasting. Partly due to ending the foolish depletion of our Strategic Oil Reserve and partly because Biden has tightened off shore drilling. The Saudi's didn't appear to be too open to helping our their friend Joe either.

 

[ApersonLIKEallOFyou]

This sounds a lot like lipstick on a pig.

 

[Mina]

This sounds a lot like lipstick on a pig.

Think harder.

 

[BirdinHand]

I keep hearing that wages aren't keeping up with inflation. No doubt that's true, but it doesn't automatically mean what people think it does. Real wages often rise during recessions then fall during the subsequent recovery.

That sounds counter-intuitive, but it makes sense when you look at the kinds of moves employers actually make in response to the start and end of a period of economic turmoil. When a recession starts, they often stop hiring new entry-level workers, hoping to "right size" through attrition. If a hiring freeze doesn't prove to be enough, they'll fire people, but that disproportionately hits lower-level workers. Unions, for example, tend to have last-in/first-out rules, which make sure it's the cheapest workers who get cut. Even outside that setting, companies are usually more comfortable going lean on the bottom rungs, where they can quickly staff up when the recovery comes, rather than losing "institutional knowledge" by cutting more senior workers. Plus, if you have 90 workers doing occasional overtime to get the job done, where you used to have 100 workers and no overtime, the median worker will be earning more.

You can see that in a graph of median real weekly earnings around the 2008 recession (with the recession in gray):

By the end of the recession, median workers were making far more than before the recession. And then, during the subsequent recovery, real wages fell (as junior positions were staffed up again, moving medians down).

The pandemic did the same thing, but much more dramatically. At the end of 2019, median weekly earnings were $362 (in 82-84 dollars). By second quarter, they were up to $393. That's about 8.6% increase in just six months, even as unemployment rates rose from 3.6% to 14.7%! And, of course, once the economy was recovering, real incomes fell again -- currently steady at $362... right where they were at the end of 2019.

So, it's not necessarily that inflation is eroding paychecks in real terms. A median worker today is earning just what a median worker was earning, per week, before the pandemic hit, after adjusting for inflation.... with the same unemployment rate. Real wages soared and then fell, but that seems to have been almost entirely the result of firing then rehiring disproportionately junior workers. Now that we're back to the previous unemployment level, we're also back to the previous real wage level.

LOL

No.

 

[ApersonLIKEallOFyou]

Think harder.

Ok.
So, you claim that unionized workers will lose their jobs and then the more senior employees who remain will be forced to work overtime and thereby make more money. I'm not sure those workers would view that as a good thing necessarily, and it does nothing to address the issue of purchasing power which gets clobbered by inflation.
You also claim that "it's not necessarily that inflation is eroding paychecks in real terms." How can that be correct? Take for example railroad workers (which made some minor news in the last few days and will make even bigger news in 60 days) who haven't gotten a raise in three years. They are making exactly the same wage but inflation has taken huge bite out of the value of their wage (purchasing power).
It's pretty simple....wages get you dollars and those dollars are worth less than they were before because of inflation.

 

[Mina]

Inflation is currently outpacing rising wages.

Well, median real weekly earnings were the same last quarter as the quarter before, so inflation and earnings matched perfectly, in that sense. But hourly real wages are down, so it's true inflation is outpacing wages measured in an hourly way.

However, the issue I brought up comes up in the hourly data, too. Average hourly earnings, divided by CPI, were 0.1099 at the end of 2019. Today they're 0.10862. So, down 1.2%... not great, but not disastrous. However, it looks worse because before wages fell, they spiked, thanks to the spike in unemployment. In April 2020, the figure was 0.11718 -- up 6.6% just from the end of the prior year. So, we had artificially high average earnings at the peak of the recession, which creates the illusion of a big decline in a situation where inflation has actually only slightly outpaced wage growth.

 

[Mina]

LOL

No.

Your failure to think of a substantive response is noted, and your humiliation has been savored.

 

[BirdinHand]

Your failure to think of a substantive response is noted, and your humiliation has been savored.

There’s no need for a substantive response to utter nonsense.

 

[Mina]

Ok.
So, you claim that unionized workers will lose their jobs and then the more senior employees who remain will be forced to work overtime and thereby make more money. I'm not sure those workers would view that as a good thing necessarily, and it does nothing to address the issue of purchasing power which gets clobbered by inflation.

I'm not arguing it's a good thing. I'm just explaining why it is that we see huge spikes in wages when the economy goes to hell, when that might not be what you'd instinctively expect. Why were wages sky-high in April 2020, when we had the worst unemployment since the Great Depression? I explained why.

You also claim that "it's not necessarily that inflation is eroding paychecks in real terms."

At the median, even after adjusting for inflation, workers earned the same amount last quarter as they were earning before the pandemic started. Nominal weekly earnings rose at the same pace as prices rose, leaving people in the same position they'd been in 4th quarter of 2019.

Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over

Graph and download economic data for Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over (LES1252881600Q) from Q1 1979 to Q2 2025 about full-time, salaries, workers, earnings, 16 years +, wages, median, employment, real, and USA.

fred.stlouisfed.org

I'm not claiming rising prices don't matter. You can see how much they matter by looking at NOMINAL (non-inflation-adjusted) earnings:

Average Weekly Earnings of All Employees, Total Private

Graph and download economic data for Average Weekly Earnings of All Employees, Total Private (CES0500000011) from Mar 2006 to Aug 2025 about earnings, establishment survey, private, employment, and USA.

fred.stlouisfed.org

As you can see, that figure is currently at an all-time high. Inflation is the reason that people aren't richer right now than ever... rather, the median worker is only earning as much, after considering inflation, as back in late 2019.

 

[Mina]

There’s no need for a substantive response to utter nonsense.

Pout for me some more. It's fun to watch people flounder this way.

 

[BirdinHand]

Pout for me some more. It's fun to watch people flounder this way.

You’re looking at aggregate data and making the false equivalency of wages keeping pace with inflation.

Your entire premise is false.

Real people sitting at their kitchen tables have less disposable income due to inflation than they had in 2019, pre-Covid. Just because some numbers at the top rose does not equate to the vast majority of individuals being in the same or better financial position than they were in 2019.

Play with your numbers and charts as much as you want. They aren’t reflective of real life experiences for millions upon millions of Americans.

And it’s nonsense like this which demonstrates just how out of touch progressive thinking is.

 

[ApersonLIKEallOFyou]

I'm not arguing it's a good thing. I'm just explaining why it is that we see huge spikes in wages when the economy goes to hell, when that might not be what you'd instinctively expect. Why were wages sky-high in April 2020, when we had the worst unemployment since the Great Depression? I explained why.


At the median, even after adjusting for inflation, workers earned the same amount last quarter as they were earning before the pandemic started. Nominal weekly earnings rose at the same pace as prices rose, leaving people in the same position they'd been in 4th quarter of 2019.

Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over

Graph and download economic data for Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over (LES1252881600Q) from Q1 1979 to Q2 2025 about full-time, salaries, workers, earnings, 16 years +, wages, median, employment, real, and USA.

fred.stlouisfed.org

I'm not claiming rising prices don't matter. You can see how much they matter by looking at NOMINAL (non-inflation-adjusted) earnings:

Average Weekly Earnings of All Employees, Total Private

Graph and download economic data for Average Weekly Earnings of All Employees, Total Private (CES0500000011) from Mar 2006 to Aug 2025 about earnings, establishment survey, private, employment, and USA.

fred.stlouisfed.org

As you can see, that figure is currently at an all-time high. Inflation is the reason that people aren't richer right now than ever... rather, the median worker is only earning as much, after considering inflation, as back in late 2019.

I suppose that's fair. Unfortunately, for most people those kinds of explanations really won't mean much. They care about the price at the grocery store or gas station and how big of a bite it takes out of their wallet. But it's still interesting to look at.

 

[Mina]

You’re looking at aggregate data and making the false equivalency of wages keeping pace with inflation.

I'm looking at aggregate data and pointing out the fact that median weekly earnings last quarter were the same as they'd been at the end of 2019, after adjusting for inflation.... and thus that they, by definition, kept pace with inflation.

Your entire premise is false.

It's not a premise. It's simply pointing to the available data.

Real people sitting at their kitchen tables have less disposable income due to inflation than they had in 2019, pre-Covid.

I have no doubt that's true for some real people.... and not for others. What the median data tells us is what's happening in the middle -- for those people whose weekly earnings are higher than half of workers and lower than the other half. With that group, measured in terms of weekly earnings, prices and earnings have risen at the same average rate since Q4 2019, leaving them in the same place as they were.

Just because some numbers at the top rose does

I think the confusion here may be down to your failure to master grade-school-level statistical lingo. A "median" isn't driven by numbers at the top rising, the way an average is. For example, picture three people earning the following in a week:

Abe: $300
Bob: $500
Charlene: $700

Now, year two, they earn the following per week:

Abe: $300
Bob: $500
Charlene: $1,000

Now, obviously, what happened at the top changed the average. Previoulsy it was $500, whereas later it was $600. But what happened to the median? Nothing. It's still $500. And if in year three Abe and Bob earn the same but Charlene earns a billion dollars, the median is still $500. That top figure can't change the median, since the median is the middle number, be definition.

So, when I say that median real weekly earnings are the same as they were at the end of 2019, it's not an artifact of something happening at the top. It just means middle-of-the-road earners have had their weekly earnings rise at the same pace as prices.

You can confirm here:

Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over

Graph and download economic data for Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over (LES1252881600Q) from Q1 1979 to Q2 2025 about full-time, salaries, workers, earnings, 16 years +, wages, median, employment, real, and USA.

fred.stlouisfed.org

 

[BirdinHand]

I'm looking at aggregate data and pointing out the fact that median weekly earnings last quarter were the same as they'd been at the end of 2019, after adjusting for inflation.... and thus that they, by definition, kept pace with inflation.


It's not a premise. It's simply pointing to the available data.


I have no doubt that's true for some real people.... and not for others. What the median data tells us is what's happening in the middle -- for those people whose weekly earnings are higher than half of workers and lower than the other half. With that group, measured in terms of weekly earnings, prices and earnings have risen at the same average rate since Q4 2019, leaving them in the same place as they were.


I think the confusion here may be down to your failure to master grade-school-level statistical lingo. A "median" isn't driven by numbers at the top rising, the way an average is. For example, picture three people earning the following in a week:

Abe: $300
Bob: $500
Charlene: $700

Now, year two, they earn the following per week:

Abe: $300
Bob: $500
Charlene: $1,000

Now, obviously, what happened at the top changed the average. Previoulsy it was $500, whereas later it was $600. But what happened to the median? Nothing. It's still $500. And if in year three Abe and Bob earn the same but Charlene earns a billion dollars, the median is still $500. That top figure can't change the median, since the median is the middle number, be definition.

So, when I say that median real weekly earnings are the same as they were at the end of 2019, it's not an artifact of something happening at the top. It just means middle-of-the-road earners have had their weekly earnings rise at the same pace as prices.

You can confirm here:

Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over

Graph and download economic data for Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over (LES1252881600Q) from Q1 1979 to Q2 2025 about full-time, salaries, workers, earnings, 16 years +, wages, median, employment, real, and USA.

fred.stlouisfed.org

Wow, you totally don’t understand.

Abe and Bob are BEHIND where they were in 2019.

Yeesh.

 

[Mina]

I suppose that's fair. Unfortunately, for most people those kinds of explanations really won't mean much. They care about the price at the grocery store or gas station and how big of a bite it takes out of their wallet. But it's still interesting to look at.

I suspect most people are more sensitive to bad news than good news, and so if you had wages rise 5% and inflation also rises 5%, most people would perceive that as a net negative, even if it were actually a net neutral for them. And, on the flip side, if they got a 5% pay cut and prices fell 5%, they'd see that as a net negative, too.

In fact, people are so much more sensitive to bad news that several years back, when there was zero COLA for S.S., people got very angry, even though it's because prices had fallen, such that getting the same SS check actually was a real increase in buying power.

I think that's why inflation is so politically risky. It's easy to get people worked up about it, regardless of what's going on with incomes. The median worker can afford the same amount of stuff with a week's work now as back in 2019, but it doesn't feel that way, when they're very conscious of higher prices and less conscious of higher earnings.

 

[Mina]

Wow, you totally don’t understand.

Abe and Bob are BEHIND where they were in 2019.

Yeesh.

Bob is right where was was in 2019, based on inflation-adjusted median earnings. That's what it means to say the median real weekly earnings were the same last quarter as in the last quarter of 2019. As for Abe, I don't have data on what happened at that level.

 

[soylentgreen]

Bob is right where was was in 2019, based on inflation-adjusted median earnings. That's what it means to say the median real weekly earnings were the same last quarter as in the last quarter of 2019. As for Abe, I don't have data on what happened at that level.

The point of inflation is not how much money a person gets in wages it is what is the purchasing power of that money. When the price of basic food items increasing outpaces that of wage increases then there is a problem with inflation.

 

[Mina]

The point of inflation is not how much money a person gets in wages it is what is the purchasing power of that money. When the price of basic food items increasing outpaces that of wage increases then there is a problem with inflation.

I feel like I'm explaining the obvious here, but that's just what I'm talking about.

Employed full time: Median usual weekly nominal earnings (second quartile): Wage and salary workers: 16 years and over

Graph and download economic data for Employed full time: Median usual weekly nominal earnings (second quartile): Wage and salary workers: 16 years and over (LEU0252881500Q) from Q1 1979 to Q2 2025 about second quartile, full-time, salaries, workers, earnings, 16 years +, wages, median...

fred.stlouisfed.org

If you check there, you'll see in Q4 2019, the median weekly earnings were $936. That's what a middle-of-the-road full-time worker made at that point. In Q1 of this year it was $1,010. However, that's using nominal dollars. If, on the other hand, you use real dollars, that means adjusting all amounts to reflect rising prices.

Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over

Graph and download economic data for Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over (LES1252881600Q) from Q1 1979 to Q2 2025 about full-time, salaries, workers, earnings, 16 years +, wages, median, employment, real, and USA.

fred.stlouisfed.org

Using that method, expressing all amounts in 1982-84 dollars, today the figure is $362, and in Q4 2019 it was also $362.

Now, granted, that's adjusting by the cost of all goods in proportion to the "basket of goods" used for the CPI calculation. If you adjusted by some sub-set of goods, like food, or electronics, or clothing, you'd get different results. The price index for food in Q4 2019 averaged 259.452, versus 291.293 in Q1 2022. So, the prices there were up around 12.3% which outpaced wage growth. Meanwhile, though, other goods had slower growth, or even shrinkage of prices, which is how the overall CPI rose more slowly than that.

 

[bullseyelqcs]

I keep hearing that wages aren't keeping up with inflation. No doubt that's true, but it doesn't automatically mean what people think it does. Real wages often rise during recessions then fall during the subsequent recovery.

That sounds counter-intuitive, but it makes sense when you look at the kinds of moves employers actually make in response to the start and end of a period of economic turmoil. When a recession starts, they often stop hiring new entry-level workers, hoping to "right size" through attrition. If a hiring freeze doesn't prove to be enough, they'll fire people, but that disproportionately hits lower-level workers. Unions, for example, tend to have last-in/first-out rules, which make sure it's the cheapest workers who get cut. Even outside that setting, companies are usually more comfortable going lean on the bottom rungs, where they can quickly staff up when the recovery comes, rather than losing "institutional knowledge" by cutting more senior workers. Plus, if you have 90 workers doing occasional overtime to get the job done, where you used to have 100 workers and no overtime, the median worker will be earning more.

You can see that in a graph of median real weekly earnings around the 2008 recession (with the recession in gray):

By the end of the recession, median workers were making far more than before the recession. And then, during the subsequent recovery, real wages fell (as junior positions were staffed up again, moving medians down).

The pandemic did the same thing, but much more dramatically. At the end of 2019, median weekly earnings were $362 (in 82-84 dollars). By second quarter, they were up to $393. That's about 8.6% increase in just six months, even as unemployment rates rose from 3.6% to 14.7%! And, of course, once the economy was recovering, real incomes fell again -- currently steady at $362... right where they were at the end of 2019.

So, it's not necessarily that inflation is eroding paychecks in real terms. A median worker today is earning just what a median worker was earning, per week, before the pandemic hit, after adjusting for inflation.... with the same unemployment rate. Real wages soared and then fell, but that seems to have been almost entirely the result of firing then rehiring disproportionately junior workers. Now that we're back to the previous unemployment level, we're also back to the previous real wage level.

So let me get this straight....

Real wages are basically the same as they were pre pandemic, and inflation is up, and somehow that means to you that wages are actually keeping up with inflation?????

0 increase in wages is less increase than the rate of inflation, which most assuredly means wages are NOT keeping up with inflation.

 

[Jay59]

It's just one of many ways that the Biden administration is not keeping up with the Trump administration. The President has no clothes.

 

[BirdinHand]

So let me get this straight....

Real wages are basically the same as they were pre pandemic, and inflation is up, and somehow that means to you that wages are actually keeping up with inflation?????

0 increase in wages is less increase than the rate of inflation, which most assuredly means wages are NOT keeping up with inflation.

It’s liberal math - trying to tell Americans that the reality we see at the grocery store and gas pumps isn’t *really* what we are seeing.

 

[Mina]

So let me get this straight....

Real wages are basically the same as they were pre pandemic, and inflation is up, and somehow that means to you that wages are actually keeping up with inflation?????

Yes. I think what we're dealing with here is your failure to master elementary-school-level statistical terms. "Real wages" refers to INFLATION ADJUSTED WAGES.

Observe. Here's the graph of nominal (non-inflation-adjusted) earings:

Here's the graph of real (inflation-adjusted) earnings:

If I were talking about nominal earnings, I'd say that last quarter people were earning far more than they had been at the end of 2019 (graph 1). But since I'm talking about real earnings, I say that they're back to where they were at the end of 2019 (graph 2).

 

[Mina]

It’s liberal math

In a sense, all math is liberal math, since conservatives are increasingly the people who are unable to do math. I find it amazing how many grade-school terms I have to define here for people. Like how can a person have gotten through high school without knowing what the term "median" meant, or that "real" wages refer to wages that have already been adjusted to account for inflation? Granted, I went to an elite high school, so my view may be a little skewed about what schools require kids to know, but I literally got that material in sixth grade.

 

[Taylor]

A median worker today is earning just what a median worker was earning, per week, before the pandemic hit, after adjusting for inflation.... with the same unemployment rate.

A median worker today is making less than what they made (in real terms) prior to the pandemic when they were a worker with an above median wage. We lost people at both extremes. Companies use these opportunities to replace higher-paid workers with younger, cheaper labor.

Real wages have declined for everyone in the past year, but more so for higher earners.