Wage Growth Studies

The Other Wage Puzzle Last quarter I wrote about the white-collar wage puzzle. This quarter, the more interesting line is the other one. Wage growth for workers outside management and professional occupations — the blue-collar, service, sales, and support workforce — has fallen from a peak above 6% in 2022 to about 3%, and it is still falling steadily. As of Q2, it has dropped below wage growth for management and professional workers, which is also easing, but gradually. Here's why that should surprise you. This group's wage growth is supposed to have two major tailwinds right now. First, the consensus view of AI. The prevailing expectation is that AI threatens knowledge work, while manual and in-person work is the safe harbor. If that were the force shaping the labor market, these workers' relative wage growth should be strengthening. Second, immigration. Border flows have collapsed and enforcement has surged. Immigrant labor is concentrated in exactly these occupations, so labor supply here is tightening. Textbook economics says wages should be accelerating. Instead, they are decelerating — against both tailwinds. Two possible reasons: The great compression is unwinding. The 2021–23 low-wage boom was a tightness story, not a structural one. These workers gained the most from an overheated labor market, and they are giving the most back. But mean reversion is getting hard to sustain as the full story three years after the peak — with the line still falling, now through a shrinking labor supply. "Everyone else" is also exposed to technology. The category includes office and administrative support, sales, and customer service — routine information work that AI handles first — plus warehousing and manufacturing, where automation keeps advancing. The consensus quietly equates "non-professional" with "AI-safe." Much of this group is neither. The uncomfortable thought: less-educated occupations may be more vulnerable than we think. BTW — I still haven't seen this chart produced by anyone but The Burning Glass Institute. #Labormarkets #wages #compensation #AI #Immigration

We’ve wrapped up the holiday season and stepped into 2025, what does the data tell us about where we’re headed? Our December SmartMatch Employment Report shows that while overall employment was up 7.6% YoY, we saw a slight dip of -0.1% MoM, the first in over a year. Median hourly wages continued their steady climb, reaching $42.20 (+4.5% YoY), but not all sectors felt the same momentum. Winners: Tech: Median hourly rate hit $63.50/hour (+3.7% MoM). Demand for skilled talent shows no signs of slowing. Construction: Annual wage growth of +6.9% YoY highlights the resilience of this sector. Lagging sectors: Retail & Hospitality: A soft holiday season with just +3.8% YoY employment growth and wages dipping -0.1% MoM—proof that consumer confidence impacts business decisions. Casual workforce: Employment rose +13.3% YoY, but average hours dropped significantly (-10.7% QoQ), showing more shifts, but fewer hours. What stands out to me? Workers aged 45–54 saw the highest wage growth (+5.5% YoY), but younger employees (18–24) saw reduced hours (-1.3% YoY), indicating that employers may be opting for experience and stability in uncertain times. This data shows that while optimism remains, businesses are still navigating increased costs, compliance pressures, and shifting workforce expectations. The question for 2025 is: how do we build resilience and growth? Check out our full report here: We’ve wrapped up the holiday season and stepped into 2025, what does the data tell us about where we’re headed? Our December SmartMatch Employment Report shows that while overall employment was up 7.6% YoY, we saw a slight dip of -0.1% MoM, the first in over a year. Median hourly wages continued their steady climb, reaching $42.20 (+4.5% YoY), but not all sectors felt the same momentum. Winners: Tech: Median hourly rate hit $63.50/hour (+3.7% MoM). Demand for skilled talent shows no signs of slowing. Construction: Annual wage growth of +6.9% YoY highlights the resilience of this sector. Lagging sectors: Retail & Hospitality: A soft holiday season with just +3.8% YoY employment growth and wages dipping -0.1% MoM—proof that consumer confidence impacts business decisions. Casual workforce: Employment rose +13.3% YoY, but average hours dropped significantly (-10.7% QoQ), showing more shifts, but fewer hours. What stands out to me? Workers aged 45–54 saw the highest wage growth (+5.5% YoY), but younger employees (18–24) saw reduced hours (-1.3% YoY), indicating that employers may be opting for experience and stability in uncertain times. This data shows that while optimism remains, businesses are still navigating increased costs, compliance pressures, and shifting workforce expectations. The question for 2025 is: how do we build resilience and growth? Check out our full report here: https://lnkd.in/gwMTKbSf

Wage growth is cooling off Labor cost pressures will continue to ease in the coming quarters as the balance of power shifts away from workers and to employers. We extended Heise, Pearce, and Weber's (2024) labor market tightness study by expanding the regression window through Q3-2025, adding five additional quarters beyond their original sample ending in Q2-2024. The HPW Index—a composite measure combining the quits rate and vacancies-to-effective-searchers ratio (V/ES)—has declined significantly from its pandemic-era peak of approximately 2.8 in early 2022 to -0.06 in Q3-2025, marking the first negative reading since the pre-pandemic period. This represents a substantial normalization in labor market conditions, with the index now sitting just below historical average of zero (by construction, the standardized index has mean zero over the estimation sample). The HPW Index's trajectory suggests that labor market tightness has fully unwound its extraordinary post-pandemic surge, with conditions now consistent with or slightly below the 1994-2025 average. While there may be some residual momentum in wage pressures, the 0.90 correlation between the HPW Index and smoothed wage growth suggests that wage growth should continue moderating in coming quarters as the lagged effects of reduced labor market tightness work through.

❓What if higher wages are not a “cost” at all… but one of the smartest productivity investments a company can make? 🚀📈🧠 The science is more interesting than most boardrooms admit. Research across labor economics has long shown an efficiency wage effect: when people are paid better, firms often gain through stronger effort, lower shirking, better retention, and a higher-quality talent pool. The International Labour Organization also notes that better wages and benefits can reinforce productivity by improving motivation and work performance. (International Labour Organization) One of the most cited real-world studies found that shifting to stronger performance-linked pay increased productivity by roughly 20% to 36% in the firm studied. That is a powerful reminder that compensation is not only about fairness — it can directly shape output. (NBER) Here’s the strategic lesson for HR, leadership, AI-driven workforce analytics, and digital transformation teams: 🔍 Problem: underpaying people may save money on paper, while quietly reducing energy, ownership, and retention. ✅ Solution: build smarter compensation systems that reward contribution, signal trust, and align pay with performance. 🌟 Benefit: better motivation, better talent attraction, better productivity, and stronger long-term business resilience. (NBER) The future of work will not be won by companies that squeeze people the hardest. It will be won by companies that understand the science of motivation, incentives, and human value. 💼✨ What’s your perspective — are higher wages an expense, or a growth strategy? 🤔📊 Credits: 🌟 All write-up is done by me (P.S. Mahesh) after in-depth research. All rights for visuals belong to respective owners. 📚  

Are Seafarers Being Left Behind? The Economic Reality of Wages vs. Inflation at Sea Over the past three decades, seafarers’ wages have failed to keep pace with global inflation, resulting in a sharp decline in real income and purchasing power. While nominal salaries have occasionally increased through ILO and ITF adjustments, these revisions have consistently lagged behind the cost-of-living growth—diminishing the attractiveness of maritime careers across all ranks and vessel types. ⸻ Wage Growth vs. Inflation Between 1990 and 2025, global inflation rose by approximately 200%, whereas the ILO minimum wage for an Able Seaman increased from around USD 300 in the early 1990s to USD 700 in 2025—a nominal rise of just 133%. This means that, in real terms, today’s seafarers earn significantly less than their counterparts three decades ago. From 2015 to 2025, wages grew by only 18%, while inflation surged by nearly 35%, translating into an effective real-term pay reduction of roughly 17%. Annual wage increments averaging 1–3% have been insufficient to offset inflation rates of 5–9% commonly seen in recent years. ⸻ Key Factors Behind Wage Stagnation Several market and structural dynamics have contributed to the growing disconnect between pay and inflation: • Weak freight markets in bulk and container shipping have constrained profit margins and wage budgets. • Nationality-based pay differentiation persists, leaving seafarers from developing nations with lower real incomes despite USD-based earnings. • Automation and digitalisation priorities have diverted shipowners’ investment focus away from human capital. • Incremental union agreements—such as the ITF’s planned 6.2% rise over 2026–2028 fail to align with global cost-of-living trends. ⸻ Strategic Considerations for Maritime Employers To maintain competitiveness and workforce stability, maritime companies and policymakers should consider the following measures: • Inflation-Indexed Wage Mechanisms: Introduce annual salary adjustments linked to global inflation indicators published by the IMF or ILO to preserve real income value. • Data-Driven Pay Benchmarking: Conduct transparent wage surveys—similar to Spinnaker’s model—to benchmark compensation across nationalities, vessel types, and ranks. • Reduction of Nationality Pay Gaps: Transition toward equitable pay structures based on skill and experience rather than nationality to improve fairness and retention. • Strengthened Collective Bargaining: Collaborate with unions under the Maritime Labour Convention (MLC) to institutionalize regular, inflation-adjusted wage reviews. ⸻ Conclusion Seafaring continues to offer competitive nominal wages compared to many shore-based professions. However, stagnant wage growth amid sustained inflation has substantially weakened real earnings and morale.

Several years after the big inflation shock, have advertised wages caught up with consumer prices? The answer depends a lot on where you live. For a new blog post with Guillermo Gallacher, we constructed a cumulative real wage index to track whether the purchasing power of wages advertised in job postings has fully recovered from the 2021-23 inflation surge. Here's where things stand as of January 2026: 🇺🇸 US: 100.8 - Real posted wages are slightly above their Jan 2021 level ✅ 🇬🇧 UK: 99.5 - Essentially recovered ✅ 🇨🇦 Canada: 97.5 - Still catching up 🇯🇵 Japan: 97.5 - Still catching up too 🇪🇺 Euro area: 96.2 - Further to go The euro area average hides huge variation. The Netherlands 🇳🇱 (99.7), Germany 🇩🇪 (99.1), and Ireland 🇮🇪 (99.1) are close to full recovery. Italy 🇮🇹 is the clear outlier at 89.9 - posted wages remain roughly 10 percentage points behind cumulative inflation. In the US, posted wages kept pace with consumer prices throughout this period. High demand for workers kept the labour market tight, and advertised pay adjusted swiftly. Though 1% real wage growth in 5 years isn’t that impressive, considering that real GDP increased 14%. As wage growth slows across the board, the remaining gaps in other countries may become harder to close, depending on how inflation trends going forward. Full analysis below - including data on how quickly wages adjust across countries and what this means for employers and employees 👇

Wages vs Inflation in Pakistan (2021–2025): What Prevented a Deeper Social Crisis? This chart compares nominal wage increases with implied real wage changes across income percentiles in Pakistan between 2021 and 2025. Source is Labor Force Surveys 2021 and 2025 by Pakistan Bureau of Statistics Inflation adjustment uses official CPI indices What the data shows Nominal wages rose most for the poorest Between 2021 and 2025, wage increases were highest for lower-income workers, reaching 55–58% in the bottom decile. Wage growth then declined steadily across the income distribution, falling to around 26% for the top 5%. This likely played a stabilizing social role While these increases were largely eroded by inflation, higher nominal wage growth at the bottom may have prevented a sharper deterioration in living conditions. In a period of extraordinary price shocks, this wage pattern likely acted as a social shock absorber, reducing the risk of widespread unrest that often accompanies sudden real income collapses among the poorest households. Inflation overwhelmed wages nonetheless Using PBS CPI indices, cumulative inflation over the period is approximately 55%. Once adjusted for inflation, real wages turn negative for almost the entire income distribution, with only the lowest income groups coming close to breaking even. Middle-class squeeze remains the dominant story Households in the middle of the distribution experienced persistent real wage losses of 10–15%, despite nominal increases. This helps explain rising economic anxiety, downward mobility concerns, and dissatisfaction among salaried urban households. Interpreting the top end with caution High-income wage estimates come with limitations Wage calculations for the top 5% should be interpreted carefully: High-income individuals are harder to reach in surveys, leading to smaller sample sizes and greater uncertainty. Income at the top is often underreported or deliberately withheld, especially where earnings come from multiple or informal sources. As a result, observed wage growth at the top likely understates total income dynamics for higher-income households. Important Note on Inflation Adjustment The inflation adjustment used in this analysis is based on headline CPI published by the Pakistan Bureau of Statistics (PBS) and does not vary by income group. In practice, lower-income households typically face higher effective inflation because a larger share of their spending is on food, fuel, and utilities—items that experienced above-average price increases during 2021–2025. As a result, even for the lowest income percentiles, nominal wage increases may not have translated into real wage gains. 2021–2025 was NOT a period of real wage growth — but nominal wage protection at the bottom likely helped preserve social stability (to the extent there was stability) Ahmed J. Pirzada in continuation of work you have done in more professional manner.

Wage Growth Is Cooling — and It’s Showing Up First Where It Matters Most The latest Atlanta Fed wage tracker highlights a meaningful shift beneath the surface of the labor market: wage growth for the lowest-paid workers has slowed sharply, now converging toward overall wage growth for the first time since the pandemic recovery began. For most of 2021–2023, the lowest quartile of earners saw the fastest pay increases — a combination of labor shortages, rapid job switching, and aggressive competition for service-sector workers. That gap has now closed. A few important takeaways grounded in current data: 1. The wage-price spiral risk has weakened. The Fed’s biggest worry in 2022 was that strong wage gains at the bottom would keep service inflation sticky. With low-income wage growth now falling below 4%, that pressure is easing materially. 2. Labor market cooling is broadening. The deceleration isn’t just a high-income story. Slower growth at the bottom suggests reduced turnover, slowing hiring, and softer demand for new workers — consistent with the trend in job openings and quits. 3. This supports the Fed’s pivot toward rate cuts in 2025. A key condition for easing is moderation in wage growth relative to productivity. The latest figures show exactly that: cooling wages without a collapse in employment. 4. The social dynamic is shifting too. The wage compression of 2021–2022 temporarily narrowed inequality. As growth at the bottom slows faster than at the top, that trend is beginning to reverse. The bottom line: This chart isn’t signaling stress — it’s signaling normalization. Wage growth is returning toward pre-pandemic ranges, easing inflation risks and giving policymakers more room to cut rates, but also reminding us that the post-COVID wage boom for the lowest-paid workers is fading. Breaking the inflation cycle will have to be painful for the lower income bracket over short/medium-term. Source: Financial Times

As Europe ages, political power is increasingly concentrated among those aged 55 and older. This trend is evident in recent election results and is also becoming more apparent in the economic sphere. 🇪🇺📉 A new NBER working paper by Nicola Bianchi and Matteo Paradisi highlights several concerning trends regarding wage growth and career progression for younger workers. The study finds that the wage growth rate for younger workers has slowed, making it difficult for them to secure senior positions. In Italy, the likelihood of workers under 35 being in the top quarter of earners decreased by 34 percent between 1985 and 2019, while the probability for those over 55 increased by a similar amount. During this period, the proportion of managerial roles held by workers under 35 dropped from 8 percent to 3 percent, while the share for those over 55 rose from 12 percent to 28 percent. These trends are responsible for the growing age-related pay gap. Young workers typically start with lower wages than older workers, and the wage growth experienced early in their careers has slowed over time. Data from Germany and the Luxembourg Income Survey (LIS) for fourteen other high-income countries confirm that the widening pay gap and the aging workforce are not unique to Italy. Link: https://lnkd.in/dZFWmKYR