Inflation Is Eroding American Workers’ Wages: Federal Reserve

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Most workers in the United States have seen their wages fall behind inflation in the past year, according to a recent report by the Federal Reserve Bank of Dallas.

The Fed calculates that 53.4 percent of the American workforce saw their real wages decline between the second quarter of 2021 and second quarter of 2022, the Oct. 4 research report said. Real wages refer to inflation-adjusted wages.

“For the 53.4 percent of such workers in second quarter 2022, the median decline (that is, half of the declines were larger and half smaller) in real wage growth was 8.6 percent,” the report said.

“The average median decline over the last 25 years is 6.5 percent, with real wage declines typically falling in the range of 5.7 to 6.8 percent,” the Fed said.

The only other periods during the past 25 years when the decline in real wages was more severe than in the second quarter of 2022 were during the Great Recession around 2008, and in 2015, which were also the result of inflation turning negative.

The proportion of workers with negative real wage growth spiked to 55.5 percent during post-COVID-19 recovery and is currently at 53.4 percent. The last time the percentage was this high was in 2011. “The current time period is unparalleled in terms of the challenge employed workers face,” the Fed wrote.

The 12-month Consumer Price Index (CPI), a measure of inflation, stood at 8.3 percent in August according to data from the U.S. Bureau of Labor Statistics (BLS). Annual inflation has remained above 7.5 percent for every single month this year.

A Sept. 13 BLS news release calculated seasonally adjusted real average hourly earnings of U.S. employees to have fallen by 2.8 percent between August 2021 and August 2022.

Living Paycheck to Paycheck

The Fed has been raising interest rates as a measure to reign in inflationary pressures as well as wage growth. Some policymakers are especially worried about a wage-price spiral, a situation in which higher prices push up wages which then pushes up prices even more.

By Naveen Athrappully

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