U.S. Real Wages Decline as Inflation Outpaces Pay

American workers are experiencing a decline in real wages as inflation continues to outpace hourly pay increases. In July, the Consumer Price Index rose at an annual pace of 3.4%, exceeding the 3.2% increase in hourly wages. This trend is driven largely by rising oil and gasoline prices resulting from the war in Iran.

Research conducted by ADP and the University of Chicago analyzed 16 million payroll records, finding that the average U.S. worker who remained in the same job between 2021 and 2024 saw a 9% decline in real wages. The study indicates that companies maintained standard raises of approximately 3% during 2022 and 2023, even as inflation reached 7%. This created an inflation transfer that maintained corporate profits while eroding worker purchasing power.

Consumer sentiment has deteriorated as a result, with the University of Michigan reporting a 7.6% monthly decline in its preliminary August Index of Consumer Sentiment. Only 8% of Americans now expect their income to grow faster than inflation over the next year, down from 18% in December 2024. University of Chicago professor Erik Hurst noted that Belgium serves as a counterexample, where consumer confidence recovered quickly because wages are legally tied to inflation.