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Real earnings fell in 2022

The Bureau of Labor Statistics reported yesterday that employee compensation costs rose 5.1 percent in 2022. However, in real terms, earnings fell by –1.2 percent. Meaning that while firms paid out on average 5.1 percent in wages, the real impact was a decrease of 1.2 percent in purchasing power. 

Additionally, when looking at the average weekly income of workers from December 2021 to December 2022, there was an increase of around three percent. Any increase, in real terms, was erased by inflation, which over the same period hit 6.5 percent. 

This comes after the Federal Reserve has confirmed the suspicion of many economists that a “wage-price spiral” is not driving inflation. Instead, the central bank has called the current situation a “price-price spiral,” which increases inflation because of supply chain constraints. As those conditions improve, inflation is expected to subside.