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01.31.20

Cleveland Fed researchers revisit wage growth after the Great Recession

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The gap between realized and potential wage growth has narrowed since 2015 thanks to rising labor productivity growth and rising inflation, according to Cleveland Fed researcher Roberto Pinheiro and contributing author Meifeng Yang.

In “Revisiting Wage Growth after the Great Recession,” the researchers find labor productivity growth in the period has been generally in line with potential labor productivity growth estimated by the Congressional Budget Office. In addition, inflation since 2015 has been coming in much closer to inflation forecasts. As a result, the gap between realized wage growth and potential wage growth has narrowed.

“This picture is in sharp contrast with the scenario we described in late 2015 in our earlier analysis,” say Pinheiro and Yang. “The reasons underlying this difference are large revisions in labor productivity data and upticks in the inflation rate and labor productivity growth since 2015.”

Read more: Revisiting Wage Growth after the Great Recession

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