Why has wage growth in the US been declining since it hit 5.9 percent in March 2022?
The original author is me
It has recently declined to 1% YTD from another high of 5% just last summer.
I’d like to point out that was one of the intended effects of making it costlier to borrow by raising the overnight rate. One of the assumptions underpinning the overnight rate hikes, known as the Phillip’s Curve, is that the onus of inflation is on workers for getting paid too much which can only be resolved by lowering wage growth indirectly through the cost of borrowing capital and raising unemployment to the ‘natural rate of unemployment’ which Larry Summers thinks is 6%. However, as I also mentioned two years ago when wage growth was hitting single digit record highs of 5.9% rent growth was hitting double digit record highs of 14% nationwide and 35–40% in certain metro areas. That 5.9% wage growth pales even further in comparison to the pandemic rent hikes when you consider that most of the growth was in the upper and middle quintiles of the distribution; the wages of bottom quintile and second quintile income earners barley budged. So workers, especially those in the bottom 50% of the income distribution, were not actually earning tremendous amounts of disposable income; they were treading quick sand trying to keep up with rent hikes, utility hikes and four decade high record consumer price inflation. Nominal rent hikes by themselves outpaced nominal wage growth by 10% during the four year pandemic period. The Federal Reserve makes the assumptions it needs to serve the bankster class interests it was set up to serve.