With the U.S. economy growing at a healthy clip and unemployment low, many people ask: Are workers paid appropriately? The rise in stock market valuations, high home prices and the soaring wealth of artificial-intelligence innovators make the question even more urgent. On a topic so central to fairness and living standards, it’s important to use data that carefully measure and evaluate compensation. In particular, the benchmarks we look to need to account for inflation and reflect worker productivity.

In the years prior to Covid, when adjusted for inflation, show that wage compensation—total wages and salaries plus supplements such as employer contributions to pensions and savings plans—closely tracked productivity gains (Chart 1). The 2020s have been a different story. Wages have increased significantly, but persistently high inflation has undercut those gains. Consequently, while real wages have increased, they haven’t kept pace with worker productivity. No wonder surveys show Americans losing confidence in the economy. Persistent inflation is the culprit. READ MORE