Has pay kept up with inflation?

There are various ways to evaluate recent trends in real pay (i.e., nominal pay adjusted for inflation), including using different measures of pay, measures of inflation, and reference periods. These factors can lead to conflicting conclusions about the trends in real pay in the United States. In October 2023, we published a detailed analysis breaking down these differences. The interactives in this updated piece will allow you to explore changes in real pay using different pay and inflation measures relative to a base period of your choice, relative to longer-term trends, and across sectors. The interactives will update each quarter as new data are released.

The first interactive below shows the annualized percent change in real pay from a base fourth quarter of your choice to the most recent quarter with available data. It also shows the annualized one-quarter change. For each time period of your choice, this interactive will show the change in real pay using four different pay measures and two different inflation measures. You can hover over the legend or the bars themselves to see percent changes in pay. The title of each figure will show the time period over which the change is calculated.

There are various metrics of pay for work (cash and, using some metrics, benefits) before taxes and government transfers. This interactive will show changes in pay using the following measures: Average Hourly Earnings (AHE), the Employment Cost Index (ECI), Median Usual Weekly Earnings, and Total Compensation (compensation reported in the National Income and Product Accounts). These metrics have key differences, such as what types of pay they include and whether they account for factors like the number of hours people work or changes in the composition of the labor market. Some commonly used measures can be hard to interpret because, for example, they ignore the loss of pay for those who are no longer working or they are affected by whether high- or low-wage workers work more or less. See table 1 for a brief overview of these differences.

These interactive figures will also allow you to understand changes in pay using two different inflation measures: the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) index. As we explain in our prior analysis, adjusting for inflation to compute real pay is essential to understanding how purchasing power has changed. However, deflating by CPI or PCE may point to different conclusions. As we explain, CPI better reflects the salient out-of-pocket costs of consumer spending. The PCE index, on the other hand, better reflects the total costs of consumer spending, including more expenses that are not directly incurred by households.

The choice of reference period matters significantly, particularly given the volatility in the economy in the past several years. These interactives will allow you to understand how pay has changed relative to a variety of reference periods before and during the pandemic and relative to longer-term trends.

See our prior analysis to better understand why these various factors matter for real pay.

The first interactive above shows the annualized percent change in real pay from the fourth quarter of each year from 2019 to 2023 through the third quarter of 2024 (e.g., choosing “Q4 2019” in the dropdown will produce the annualized percent change in real pay from Q4 2019–Q3 2024). It also shows the annualized one-quarter change.

We find that all four measures of typical and aggregate pay, adjusted by PCE, have grown since 2019. When deflating using CPI, we find smaller increases across three of the four measures and a decline in one measure. In other words, nominal pay by these measures has done relatively well in keeping up with overall costs of living since 2019, measured by PCE. Nominal pay has done somewhat less well in keeping up with increases in the costs of goods and services that are much more salient to consumers, measured by CPI. This pattern is consistent across time periods, with pay deflated by CPI experiencing smaller increases—or instead decreases—relative to pay deflated using PCE.

Further, there have been gains in real pay across measures relative to the fourth quarter of 2021 using PCE, with more mixed results using CPI. Since the fourth quarter of 2022 or 2023, deflating by either inflation measure shows gains in real pay. The gain in real pay since the fourth quarter of 2023 is smallest using Median Weekly Earnings, but pay using this measure is still significantly higher relative to the third quarter of 2023, reflecting a sharp increase in the fourth quarter of 2023. Finally, in the past quarter, real pay grew across all pay and inflation measures.

Total Compensation generally shows the biggest increases in pay across quarters. As we explain, this measure accounts for aggregate pay across all individuals accounting for changes in employment (i.e., changes in pay resulting from changing numbers of workers or hours worked). Average Hourly Earnings and Median Weekly Earnings, on the other hand, are sensitive to changes in composition. Therefore, results are more mixed when using these measures, particularly over certain time periods when either lower- or higher-wage industries and occupations are increasing as a share of the overall labor market. For example, in 2020, pay increased for the average or median worker, in part because those who remained employed at the time were higher-wage workers. Read our prior analysis for more details on the differences between various pay and inflation measures and how they impact changes in real pay.

To gauge how much the labor market has recovered over the current business cycle, this second interactive figure compares current pay to trends over the previous 2007–19 business cycle. Again, real measures of pay are shown using both CPI (dark green) and PCE (light green) inflation adjustment. (Because we adjust the nominal measures to 2023 levels, the real and nominal pay measures are nearly identical in recent quarters; as a result, the solid dark green and light green lines overlap in the latest data plotted.)

The trend lines estimated over the previous full business cycle (2007–19) are plotted as dashed lines, showing predicted levels of pay if this trend had been maintained. The trends are similar, but growth in pay is generally slightly weaker when adjusted with CPI compared to PCE because of differences in these inflation measures as discussed above. To be sure, the trends are sensitive to the period over which they are estimated. For example, pay growth was quite weak during the middle of the 2007–19 cycle and then quite strong later in the cycle. Notably, those longer-term trends suggest that, for all measures, pay was above trend in 2019, right before the pandemic.

Again, when looking at recent changes in pay compared to longer-run trends, different measures suggest different conclusions. Using the PCE adjustment, all measures except for ECI have been at or above trend since 2023. As noted above, ECI offers the clearest look at how much compensation for the same kind of jobs has changed over time. Thus, in recent quarters, pay is at trend or above trend when measured as Total Compensation or pay for the typical job being worked (AHE and median Weekly Earnings) but below trend for pay holding the composition of jobs constant (ECI). Using the CPI adjustment, Median Weekly Earnings has been above trend for the past several years. As of Q3 2024, adjusting using CPI, Total Compensation and AHE are close to or above trend, but ECI remains below trend.

In the following two interactive figures, we also explore changes in ECI and AHE across sectors. The sectors are sorted from low- to high-wage based on Average Hourly Earnings in Q3 2024.

There is considerable heterogeneity across industries. Leisure and hospitality—the sector paid the lowest on average—is the only one with a consistent increase over time across both AHE and ECI and both inflation adjustments. On the other hand, the information sector has seen the weakest pay growth over time with nominal pay not keeping up with inflation as measured by both ECI and the AHE.

Editor’s note: Note that, in the Q1 2024 update, ECI reflected ECI for all civilians. Starting in Q2 2024, the figures use ECI for all private workers, consistent with the original analysis.