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Press Release

New Cleveland Fed model says postpandemic wage growth was mainly driven by inflation, not labor imbalances

High inflation – not a tight labor market – appears to have been the main driver behind postpandemic wage growth, according to a new model created by the Federal Reserve Bank of Cleveland.

The model suggests that inflation accounts for four-fifths of the increase in wage growth from the fourth quarter of 2020 through the first quarter of 2023.

Cleveland Fed researchers Martin DeLuca and Willem Van Zandweghe describe the model in a new Economic Commentary, “Postpandemic Nominal Wage Growth: Inflation Pass-Through or Labor Market Imbalance?”

The model is a version of the Phillips curve that doesn’t use the unemployment rate to predict wage growth. Instead it considers several other factors known to influence wage growth.

“While labor market imbalances have been large in the postpandemic period, they induced both downward and upward pressures on wage growth and do not account for the increase in average wage growth,” DeLuca and Van Zandweghe write.

The model also predicts that wage growth will return to prepandemic levels by the end of 2025, assuming that inflation continues to decline.

Read the Economic Commentary: Postpandemic Nominal Wage Growth: Inflation Pass-Through or Labor Market Imbalance?

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Chuck Soder,, 216.672.2798