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Do Unexpected Inflationary Shocks Raise Workers’ Wages?

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Abstract

The past year’s steady decline in nominal wage growth now appears in danger of stalling. Given ongoing uncertainty in Ukraine and the Middle East, this seems an opportune moment to revisit the conventional wisdom about the relationship between inflation and wages: if an unexpected increase in energy costs drives up the cost of living, will workers demand higher wages, reversing the recent moderation in wage growth? In new work with Justin Bloesch and Seung Joo Lee examining those concerns, our analysis shows that the pass-through of such inflationary shocks to wages is weak.

Suggested Citation

  • Jacob P. Weber, 2024. "Do Unexpected Inflationary Shocks Raise Workers’ Wages?," Liberty Street Economics 20240515, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:98274
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    More about this item

    Keywords

    inflation; Cost of living; shocks;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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