BlackRock Investment Institute

Macro insights

U.S. wages: room to grow

This chart shows that U.S. private sector wages grew by 5% in 2021, the fastest pace of gains since the 1980s.

Sources: BlackRock Investment Institute, with data from Haver Analytics, April 2022. Notes: The
chart shows year-on-year growth in private sector nominal wages and salaries from the Employment
Cost Index (ECI) quarterly release. Latest data are for Q4 2021.

Private sector wages grew by 5% in the U.S. in 2021. This marked the fastest pace of gains since the 1980s, as the chart shows. Employers could fund higher wages by increasing prices, in turn causing workers to demand further pay rises – and so the loop goes on. In other words, is this the start of a wage-price spiral? We don’t think so.

An economy adjusting

It has proven difficult to entice workers back to work as pandemic restrictions lifted, especially to services jobs that require a lot of contact with people. Wages have gone up to persuade them. This is unusual, given that many people have not yet returned to the workforce. These are not wage pressures typical of a normal business cycle: they’re helping the economy adjust to a labor shortage.

Moreover, research shows that workers are 4.5% more productive now than before the pandemic. Greater productivity negates the need for price increases. And when you consider currently high inflation, there is still more room for individual wages to rise before they catch up with existing price increases.

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Elga Bartsch
Head of Macro Research
Read bio
Nicholas Fawcett
Macro Research

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