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Posted on 08/19/2026 6:30:52 AM PDT by Diana in Wisconsin
American workers' wages are once again failing to keep up with inflation — a painful financial déjà vu of the pandemic years.
The repeat situation may feel even more acute given that many workers are still catching up from the 2021-2022 inflationary bout, when companies gave workers only moderate pay raises that fell short of four-decade-high price increases, according to new economic research.
From February 2021 to June 2022, real wages — or the purchasing power of the average American's paycheck — fell by more than 4%, according to the paper from the University of Chicago and ADP researchers.
That hit proved lasting for many, with the analysis finding that 37% of workers whose payroll records researchers examined earned less in inflation-adjusted terms in December 2024 than they had four years earlier. Those losses were never made up, and now many Americans are re-experiencing a similar trend.
The Iran war has reignited inflation by raising oil and gasoline prices, which pushed the Consumer Price Index to an annual pace of 3.4% in July. That outpaced the 3.2% increase in workers' hourly wages over the same period, leading to a decline in workers' real wages.
The "long shadow" of the pandemic's high inflation is still hanging over workers, University of Chicago Booth School of Business professor Erik Hurst, a labor economist and coauthor of the paper, told CBS News.
"Workers were already behind the eight ball in terms of affordability, even going into inflationary pressures that started earlier this year from the war in Iran," University of Chicago Booth School of Business professor Erik Hurst, a labor economist and coauthor of the paper, told CBS News. Gloomy consumer sentiment
Researchers used monthly payroll data from ADP covering 16 million workers to analyze firms' practices in setting wages and raises. They found that most firms peg annual raises to a common norm, making only modest adjustments during periods of high inflation.
That failure to peg pay raises to inflation caused real wage losses, the research found. Before the pandemic, workers were typically given pay increases of about 2% to 4%, but when inflation hit a 40-year high of 9.1% in June 2021, companies stuck with their regular pay hikes. Many workers lost financial ground as a result, according to the analysis.
Hurst said most companies have wage growth "norms" whereby workers, including himself, receive a relatively standard 3% wage increase each year.
"That's what I got at [University of] Chicago, which works well when inflation is at 2%, because it gives us 1% real wage growth," he said. "But when inflation exceeds 3%, then real wages start to erode."
The latest bout of inflation, driven directly by oil price increases, is contributing to diminished consumer sentiment because workers can see they are losing ground financially, according to Hurst. In August, consumer sentiment dipped about 8%, reversing two months of improvement, according to the University of Michigan.
"When real wages are low, well-being is low because purchasing power has gone down," Hurst said. "Consumer sentiment is low, despite unemployment being low and employment being relatively high." Inflation transfer
If a company gives a worker a 3% pay adjustment when inflation is at 4%, that effectively amounts to a 1% pay cut.
This dynamic creates an "inflation transfer," effectively shifting the burden of higher prices from corporations to workers.
For example, assuming a worker's productivity does not drop by 1% over one year, but their real wages fall by the same amount, a company benefits from that same productivity but is paying wages that are 1% lower.
"Real wages are low and firm profits are high, and they are not unrelated to each other," Hurst said. Job hopping and wages
One way to avoid real wage erosion is to switch jobs, according to the report, which found that job changers' wages rose nearly in line with inflation. But that comes with its own costs, according to Hurst.
"People who switch jobs tend to keep up with inflation, which is great, but switching jobs is not free," Hurst said. "You have to expend effort to look for a job, move your family and change your workflow. Some actions workers take to keep up with inflation are themselves inherently costly."
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In the long term, wages generally match changes in productivity. Wages fell behind inflation in the 1970s but that coincided with the entry of Baby Boomers into the job market, and they were inefficient and thus, did not generate wage increases. That corrected itself in the 1980s and 1990s. I know that “in the long term” provides no real comfort to people who are hurting today, but it does point up that we need productivity gains to have real wage growth. All the increases in the minimum wage are meaningless if they aren’t matched with productivity gains. They will just result in more inflation or replacing workers with machines and AI.
Those platinum parachutes and bribes to get spoiled kids into the Ivy League has to be paid for by someone, and it sure isn't coming out of those who spent hard years BSing their way to the top of the ladder.
Pandemic-era inflation? How about Biden-era inflation. When they start off with a blatant lie like that, I usually don’t readany further.
As if this issue just reared its ugly head. How did CBS handle the wage issue during the extreme inflation of Joey Biden and his handlers?
I suspect voluntary productivity is way down from previous decades.
People seem lazier than ever.
Trump needs to get on this.
I remember his first term he cut corp fed tax by 9% claiming workers would benefit. I sent a letter to my contract leadership requesting a 50-50 split of the benefit. 4.5% pay raise and a 4.5% profit increase.
Nope.
The corporation took the full 9% tax cut as profit.
She was in a difficult position where she was doing about 50% of the work load in a team of four workers. She also happened to be paid the lowest of the rest because of their tenure with the company.
I told her this was one case where laziness was not only acceptable, but appropriate.
1. The company is obviously OK with the slackers and doesn’t reward high productivity, so what’s the point of working hard?
2. Making up for the shortcomings and defects of her peers actually removes any incentive for the company to fix the problem. The company may not even know there IS a problem, if the work is all getting done.
It was transitory. Thats all we needed to know. Under control … totally.
In the long term, wages generally match changes in productivity.
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you can find plenty of graphs which show that wages kept up with productivity until the 1970’s and then they seperated. the gap has kept widening.
Specifically 1971...
Anyone remember what happened that year? Decoupling from the gold standard perhaps?
Covid didn’t crush the economy.
Government crushed the economy.
All of that is understandable, and I think relatable
to many workplaces.
The hardest workers I see are family people
who work 2 or 3 jobs.
I think that if a republican had been president from 2020-2024 that we would see less “pandemic era” and other such labels, and more of his name and party used and tied to negatives of the administration’s time in office.
“In the long term, wages generally match changes in productivity.”
Not really.
Since 1970 labor’s share of the GDP has fallen from ~59% to 51%.
Its a reason why so many people feel poor. Because they actually are poor.
Covid era
The Trump administration blocked evictions during the Covid era.
Lots of people stooped paying rent.
The landlords had to get the needed cash from people who pay their bills.
2026
The oil men are getting more for their oil. They are paying down their often massive debts accumulated after years of low oil prices.
Consumers have to pay more for gasoline.
******
The money is simply getting shifted around.
******
When hamburgers go from $1 to $3 the fast food workers benefit, along with their health care providers, and the governments that tax their wages.
“Since 1970 labor’s share of the GDP has fallen from ~59% to 51%.”
Things are more automated. Automation takes capital. There needs to be a return on capital investment.
There are new drugs since 1970. They cost a lot of money to create. The drug company shareholders want a return on their capital and are getting it.
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