The average worker in the U.S. who stayed in their job between 2021 and 2024 saw their wages decline by 9% after inflation, according to a new paper from ADP and the University of Chicago. It also found that it’s that real wage decline — rather than inflation itself — is at the root of poor consumer sentiment.
If your salary goes up, but grocery prices go up more, your real wage has gone down.
“It’s not rocket science, right? You gotta increase your wage to keep pace with inflation,” said Tia Koonse, the policy director at the UCLA Labor Center.
Today, the gap between wage growth and inflation is smaller, she said. But that doesn’t undo the bad news of a few years ago.
“We have not caught up. Workers will never catch up,” Koonse said. “They experience lost income. They’re just buying less. They just have less purchase power.”
This paper said that the problem is that companies usually give raises of around 3%, regardless of how much the cost of living actually goes up.
“And even though the inflation rate was 7%, they stuck with their norm of 3% in ‘22 and ‘23,” said Erik Hurst, an author of the paper who teaches economics at the University of Chicago.
It wasn’t inflation per se, but the fact that wages didn’t keep up — that’s been weighing down consumer sentiment, he said. His proof: Belgium.
“It is the only European country that had consumer confidence that bounced back after the inflation period,” Hurst said.
That’s because it also happens to be the only European country where wage increases are directly tied to inflation. If prices go up by 7%, then by law, so does your salary.
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