Economic Progress

Charted: US wage growth is in decline, here's why

US dollar banknotes

US employers spent 1% more on wages in Q4 2022, compared to Q3 2022. Image: Unsplash/alschim

Nate DiCamillo
Reporter, Quartz
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Economic Progress

  • US employers are spending less on wages, as this chart shows.
  • They spent just 1% more on wages in the fourth quarter of 2022, a marked decline from 1.3% and 1.4% earlier in the year.
  • While lower employer costs are good for inflation, it leaves workers with less leverage to negotiate higher wages and employee benefits.

American employers are slowing their spending on employee wages—a data point that is likely to ease the inflationary concerns of Federal Reserve officials.

American employers spent just 1% more on the wages in the fourth quarter 2022, as compared to the third quarter. This marked a decline from the additional 1.3% they’d spent from the second to third quarter, and from the additional 1.4% they’d spent from the first to second quarter.

Two quarters of consecutive decline shows that employer costs are falling, and that they will thus have fewer reasons to raise prices—a good sign for anyone worried about inflation. It also means, though, that workers currently have less leverage to negotiate higher wages for themselves.

Absent further changes in the economy, employer spending on wages looks to be headed back to the pre pandemic trend. In 2018 and 2019, the average increase in this kind of spending was 0.75% per quarter.

Graph showing the quarterly increase in American employer spending on wages.
Employer spending on wages is falling to pre-pandemic levels. Image: Quartz

US employers are slashing benefits

Employers are also cutting what they offer employees in terms of benefits. Their spending on benefits increased by a mere 0.8% in the fourth quarter and has been declining for three quarters in a row.

Several economists are beginning to understand inflation not as a neutral monetary phenomenon but as a battle between workers and employers over who will get to benefit from labor. This latest data shows that workers are losing that battle.

The Fed knows that its tools (such as the elevation of interest rates) risk increasing inequality. But it relies on its congressional authority to keep hiking until its officials feel comfortable that inflation is headed back down towards its hallowed 2% target.

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