“Though wages are rising, inflation is winning the race”

That’s the title of a NPR report.

Inflation hit 7.9% in February compared to a year earlier, setting yet another four-decade high. Wages are not keeping up. Average hourly wages in the private sector rose at an annual rate of 5.1% last month.

Some context is useful here; while real wages are declining, private nonfarm payroll wages are still higher than they were on the eve of the pandemic (2.1% higher). They are markedly so for workers who were working in the lowest wage categories, including hospitality and leisure (4.8% higher).

Figure 1: Average hourly earnings in total private nonfarm (black), and in leisure and hospitality services (chartreuse), for production and nonsupervisory workers, in 2020$ (using CPI as deflator). NBER defined peak-to-trough recession dates shaded gray. Source: BLS, NBER, and author’s calculations.

Inflation adjusted wages are yet higher if one uses the PCE deflator.

Figure 2: Average hourly earnings in total private nonfarm (black), and in leisure and hospitality services (chartreuse), for production and nonsupervisory workers, in 2020$ (using PCE deflator). Cleveland Fed nowcast of 3/10 used for February PCE. NBER defined peak-to-trough recession dates shaded gray. Source: BLS, Cleveland Fed, NBER, and author’s calculations.