U.S. workers face another real-wage decline as inflation outpaces pay raises

Analysis from University of Chicago Booth School of Business and ADP reveals that during the 2021-2022 inflation surge, average real wages fell more than 4%, and a sizable share of employees remained behind in December 2024 compared with four years prior. The resurgence of inflation, driven by higher oil and gasoline costs after the Iran war, lifted the Consumer Price Index by 3.4% in July, outpacing the 3.2% rise in hourly wages and shrinking real earnings.

Researchers note that most companies apply a standard 2%-4% annual raise, which proved insufficient when inflation hit a 40-year high of 9.1% in June 2021. Labor economist Erik Hurst explains that this “inflation transfer” shifts the cost of rising prices onto workers while corporate profits stay high. Consumer sentiment fell about 8% in August, despite low unemployment, reflecting the public’s concern over dwindling purchasing power. Switching jobs can help workers keep pace with inflation, but the transition entails significant personal costs.