Abstract
We use a sample of administrative payroll data covering a large and nationally representative share of U.S. workers to study how wages adjusted during the recent inflation period. Most firms apply a single modal annual nominal wage increase to the majority of their workers, and these firm-level norms changed little during the recent period of unexpected inflation. As a result, nominal wages did not keep pace with prices for a large share of workers who stayed at their firms. Forty-three percent of workers continuously employed at the same firm over the four years spanning 2021–2024 experienced a real wage decline, with a mean loss of roughly nine percent among those who fell behind. Workers could escape sticky wage norms by changing employers — job-changers’ wages rose nearly one-for-one with inflation — but switching was too infrequent to matter for most. Even accounting for job-changers, 37 percent of all workers saw real wages decline over the 4-year period. Indexing firms’ modal raises one-for-one to inflation would have closed roughly 40 percent of the resulting shortfall relative to pre-pandemic trend. Drawing on cross-country evidence from Belgium, whose wages are automatically indexed to inflation, we show that incomplete wage indexation, rather than inflation itself, helps explain the persistence of depressed consumer sentiment during the 2021–2024 period.
1 Introduction
After nearly four decades of low and stable inflation, U.S. consumer prices rose sharply and unexpectedly from mid-2021 through late-2023, with the inflation rate peaking at 9 percent in June of 2022. During this period, U.S. consumer sentiment fell to levels not seen since the depths of the Great Recession despite the unemployment rate being at historically low levels. Over 70 percent of Americans in 2022 reported that inflation was a “very big problem” (Pew Research Center 2022). In early 2024, when the inflation rate returned to normal levels, over 40 percent of Americans still claimed that “inflation/high cost of living” was the most important financial problem facing their family (Gallup 2024). Americans’ unhappiness with inflation has been cited as an important factor in voting patterns during the 2024 presidential election (Steinberg et al. 2025; Riãno and Trebbi 2026; Leonhardt 2024). Importantly, even three years after the inflation rate peaked, Americans are still reporting that inflation and affordability are pressing concerns. As of 2025, U.S. consumer sentiment remains depressed, roughly 30 percent of Americans still report that cost of living is their most pressing financial problem, and over 60 percent of Americans still report that inflation is a very big problem.
In this paper, we argue that Americans’ enduring discontent with inflation reflects the lasting real wage losses generated during the inflationary episode. Using a sample of administrative payroll data from ADP covering roughly 16 million workers per month, we examine real wage dynamics and firm wage-setting from 2016 through 2025. We show that most firms anchor annual raises to a common wage norm applied broadly across workers, and that these norms adjusted only modestly when inflation surged. Larger off-cycle raises and job changes allowed some workers to keep pace, but these responses were too limited to restore real wages for the typical worker. A temporary inflation shock therefore produced a persistent downward shift in real wages, helping explain why Americans’ dissatisfaction outlasted the inflation episode itself.
Figure 1 serves as the launching point for our paper. The figure shows a real wage index for the United States computed using either data from ADP (solid line) or data from the Current Population Survey (CPS) (dashed line). The two lines track each other closely, highlighting that the ADP data is representative of the U.S. labor market with respect to wage dynamics — a point we discuss in greater depth in Section 2.3. Median real wages fell by 4 percent during the inflation period, and did not recover to their 2020 level until late 2024. Moreover, zero real wage growth is not an appropriate benchmark for assessing whether real wages kept up. The ADP and CPS wage indices are defined by using the wage growth of a given worker over time. There is a large literature documenting that the wages of a given worker increase year-over-year due to the accumulation of general or firm-specific human capital; such life cycle wage growth occurs even in a world where there is no aggregate productivity growth. The red dashed line in Figure 1 is the predicted real wage path over the 2020–2025 period, based on extrapolating the 2017–2019 trend in the ADP data forward.
During the 2017–2019 pre-period, real wages grew at roughly 2.2 percent per year. This is in line with estimates of the annual return to experience. As of December 2025, the real wage index stands roughly 7 percent below where real wages would have been had the 2017–2019 trend continued. The 2017–2019 trend is a demanding benchmark, since real wage growth in the late 2010s was unusually strong. Measured against average real wage growth of 1.5 percent per year over the longer 2000–2019 period, the shortfall as of December 2025 was still roughly 4 percent.
The goal of this paper is to use the richness of the ADP data to shed light on the mechanisms driving the dynamics of real wages during this period. First, we document that job-stayers’ wages did not keep pace with inflation. Median year-over-year real wage growth fell from roughly 1 percent in 2017–2019 to about negative 4 percent during the inflation surge. Although real wage growth returned to its pre-period rate by mid-2023, the earlier losses were never made up, leaving job-stayers’ real wages persistently below trend.
The long panel reveals how widespread these cumulative losses were. Among workers continuously employed at the same firm from December 2020 through December 2024, 43 percent ended the period with lower real wages than at its outset; conditional on a decline, the mean loss was 9 percent and the median loss was roughly 7 percent. More broadly, 55 percent averaged less than 1 percent annual real wage growth over this 4-year period. Both the incidence and magnitude of these losses were far greater than among comparable four-year job-stayers before the pandemic. Thus, nominal wage growth failed to keep pace with inflation for a substantial share of workers who remained with the same employer.
We next examine the firm-level wage-setting practices behind these losses. Because ADP records base-wage changes for every worker within a firm, we can identify the firm-specific month in which most annual raises occur—the firm’s “on-cycle” month—and distinguish these raises from “off-cycle” adjustments in other months. Off-cycle raises are systematically larger and are consistent with worker-specific events such as promotions or responses to outside offers.
Among workers who receive exactly one wage adjustment in a year, raises cluster tightly around a firm-specific mode. A majority of all annual wage changes are within 0.5 percentage points of the modal increase, and more than 90 percent are within 1.5 percentage points. We refer to this modal increase as the firm’s “wage growth norm.” For example, during the 2017–2019 period, the modal firm had a wage growth norm of 3%, meaning that most workers received a nominal wage increase of about 3% during their on-cycle month. Critically, the distribution of wage growth norms across firms shifted only modestly during the 2021–2023 period relative to the pre-pandemic period. Roughly 89 percent of workers were employed in firms that had a wage growth norm of 2, 3, or 4 percent before the pandemic; during the inflation period, that fraction was approximately 76 percent, with a modest shift away from the 2–3 percent range toward 4–5 percent. Even as inflation rose well above prevailing wage norms, firms adjusted those norms only weakly. Because most workers’ raises were anchored to their firm’s norm, this limited adjustment helps explain the erosion of job-stayers’ real wages. Critically, these norms had been set for an era of low and stable inflation; because the inflation was unexpected, neither the norm nor workers’ initial wage bargains had priced it in, so the surprise translated directly into an unanticipated real wage loss. The stickiness we document is therefore a property of a wage-setting regime adapted to low and stable inflation, not a structural constant. Had high inflation persisted, we expect firms would have re-indexed their norms, much as cost-of-living clauses spread through U.S. collective bargaining agreements during the high inflation period of the 1970s and early 1980s.
Firms did, however, adjust on a different margin – they became more likely to grant large, worker-specific raises outside the standard annual review cycle. As a result, the within-firm distribution of nominal wage growth became more right-skewed during the inflation period. Large raises rarely arrive through the on-cycle review: on-cycle increases cluster tightly between 2 and 4 percent, while two-thirds of off-cycle increases exceed 4 percent and one-third exceed 8 percent. More notably, the share of job-stayers receiving more than one base-wage adjustment within a year rose from roughly 16–18 percent before the pandemic to approximately 27 percent in 2021 and 2022. These additional, off-cycle increases were substantially larger and more dispersed than standard on-cycle raises. Thus, rather than broadly resetting their wage norms in response to inflation, firms granted large, individualized adjustments to a growing minority of workers.
Changing employers offered workers a second way to escape sticky firm wage norms. Job-changers’ annual nominal wage growth tracked inflation nearly one-for-one, allowing them largely to avoid real-wage erosion in the year they moved. However, switching rose only modestly during the inflation period, and for any given worker, moves across employers are infrequent. This pattern means that in most years, even those who switched jobs at some point were again subject to sticky firm wage norms. Consequently, including job-changers reduces the share with a cumulative real wage decline only from 43 percent among job-stayers to 37 percent among all workers. The median loss among those who fell behind was approximately 9 percent, and 58 percent of all workers ended the period below the pre-pandemic trend.
How much of the aggregate real wage shortfall does the norm itself account for? We answer this with an accounting exercise that indexes firms’ modal raises one-for-one to inflation, holding everything else — off-cycle raises, job-changer wage growth, and the shares of workers in each group — at its observed value. Indexing that single rule closes roughly 40 percent of the gap relative to the 2017–2019 trend and roughly 73 percent of the gap relative to the more conservative 2000–2019 trend. Extending the same rule to all job-stayer wage growth closes more than half of the gap to the 2017–2019 trend and essentially eliminates the gap to the 2000–2019 trend. Together, these exercises show that a broadly applied feature of firm wage-setting, namely the weak indexation of job-stayers’ raises, can generate a large aggregate shortfall.
One implication of these firm-level patterns is that exposure to real-wage erosion should vary with workers’ access to both job switching and large worker-specific raises (e.g. promotions). We examine the implication of this for inequality across two dimensions of observable worker heterogeneity – initial wage and age.
Along the wage distribution, greater mobility initially protected lower-wage workers. The U.S. wage distribution was already compressing during 2016–2019, with workers in the bottom two deciles experiencing substantially faster wage growth than higher-wage workers. This compression accelerated in 2021: real wage growth in the bottom two deciles remained positive and close to its pre-period pace, while all other deciles experienced declines of about 2 percent, roughly four percentage points below their pre-period growth. Higher job-switching rates among lower-wage workers helped them escape sticky firm wage norms. This early acceleration in compression did not persist, however. Over the full 2021–2024 period, cumulative wage compression was similar to the pre-period: lower-wage workers continued to experience faster real wage growth relative to higher wage workers.
We also show that the real wage declines were larger for older workers. Roughly 55 percent of workers age 50 and older experienced a cumulative real wage decline between December 2020 and December 2024. Older workers had less access to both escape margins: they switched employers less often, gained less when they did switch, and were less likely to receive large raises while remaining at the same firm. Even before the inflation episode, their flatter age-earnings profiles left a larger share receiving no nominal wage increase. The inflation surge therefore produced especially large real wage losses for older workers, who have fewer opportunities to advance either within or across firms.
In the last part of the paper we provide several pieces of evidence that speak to the broader consequences of the minimal wage indexation at U.S. firms during the recent inflation period and the resulting declines in real wages experienced by U.S. workers. The real wage declines documented above are costly to the workers who experience them, but even workers who take action to overcome sticky wage norms incur costs of their own — searching for a new job, negotiating with an employer, and so on. These two types of cost are economically distinct: the effort workers expend to escape the firm’s norm is a deadweight loss, whereas the real wage decline borne by those who do not take actions is a transfer from workers to firms that benefit from the lower labor costs. We present two additional pieces of evidence consistent with this view that minimal wage indexation is costly to workers but advantageous to firms.
First, we show that the real wage growth that workers did not receive reappears, in roughly the magnitude one would expect, as higher firm profits. Between the pre-pandemic and inflationary periods, the U.S. corporate profit share of GDP rose by 1.7 percentage points — broadly consistent with the magnitude implied by the real wage shortfall we document, and its highest sustained level in half a century. The firm profit rate jumped when the inflation started in mid 2021 and remained elevated through 2025 as real wages remained depressed.
Second, we use cross-country variation to show that the lack of wage indexation, rather than inflation itself, was an important driver of the persistent decline in consumer sentiment between 2021 and 2024. Belgium offers a natural experiment: its wages are automatically indexed to inflation, insulating workers from real wage erosion, yet it experienced the same inflation, labor market conditions, and aggregate shocks — including Ukrainian immigration — as Germany, the Netherlands, Denmark, and the broader Eurozone. Real wage and consumer confidence measures diverged sharply across the countries. In Belgium, real wages rebounded to pre-inflation levels by 2023 and consumer sentiment recovered with them. In the peer countries, where wages adjusted slowly and incompletely, neither real wages nor consumer confidence had recovered by the end of 2024. We find consistent patterns within the United States across age groups. Retired households have a substantially larger share of their income indexed to inflation — through Social Security, which is indexed by law, and through asset income that kept pace with prices — whereas older workers who have not yet retired are exposed to the same sticky wage norms as everyone else. Consistent with real wage erosion driving sentiment, the decline in consumer confidence was far smaller for age groups in which most individuals are retired than for those in which few are.
Taken together, the cross-country and cross-age evidence suggests that consumer sentiment recovered when real incomes were protected, not simply when inflation subsided. In the United States, sticky firm wage norms left many workers’ real wages below their pre-pandemic trajectory, helping to explain why sentiment remained depressed through 2024.
The remainder of the paper proceeds as follows. Section 2 describes the data and assesses the representativeness of the ADP sample. Section 3 documents real wage losses among job-stayers and the firm wage-setting norms behind them, while Section 4 incorporates job-changers to characterize wage growth for the workforce as a whole. Section 5 examines heterogeneity across workers, and Section 6 quantifies the contribution of incomplete indexation to the aggregate real wage shortfall. Section 7 examines the broader consequences of incomplete wage indexation, showing that the associated real wage shortfall is quantitatively consistent with the rise in the corporate profit share and helps explain the persistent decline in consumer sentiment. Section 8 concludes.
Related Literature
This paper contributes to a large literature documenting why workers dislike inflation. Di Tella et al. (2001) show that higher inflation reduces reported life satisfaction with effects comparable in magnitude to rising unemployment, while Shiller (1997) and Stantcheva (2024) use survey evidence to document that workers link inflation directly to declining real purchasing power and reduced economic security. An alternative explanation for why workers dislike inflation is “money illusion” — the tendency to reason in nominal rather than real terms. Shafir et al. (1997) show that individuals systematically reason in nominal terms even when real quantities are what matter for welfare, and Fehr and Tyran (2001) provide experimental evidence that money illusion affects economic behavior in ways that are difficult to rationalize under standard assumptions. Our paper provides direct microeconomic evidence that distinguishes between these two stories: we show that real wages did in fact decline substantially and persistently during the 2021–2023 inflation episode, lending empirical support to the view that workers’ dislike of inflation reflects genuine real wage erosion rather than a cognitive bias. Our Belgium case-study reinforces this conclusion.
Two papers motivate our empirical analysis and provide structural interpretations for our main findings. Guerreiro et al. (2026) develop a model in which workers must take costly “conflict” actions — renegotiating their contracts, threatening to quit, or pursuing outside offers — in order to obtain nominal wage increases that keep pace with inflation. Because these conflict actions are costly, the welfare losses from inflation exceed those implied by the decline in real wages alone; workers bear an additional burden from the effort required to defend their purchasing power. This framework provides a natural interpretation for our finding that off-cycle wage adjustments rose sharply during the inflation period: workers who received large off-cycle increases had, in many cases, taken precisely the kinds of costly actions described in Guerreiro et al. (2026). For the majority of job-stayers who did not receive off-cycle raises, the cost was paid instead through passive real wage erosion. Afrouzi et al. (2026) develop a complementary model in which nominal wage stickiness induces workers with eroded real wages to search more intensively for new jobs, generating a tight link between inflation and job vacancy creation and predicting that job-changers keep pace with inflation while job-stayers accumulate losses — exactly what we document in the ADP data. Their model also allows job-stayers to pay a menu cost to escape a firm’s sticky wage growth norms thereby also reconciling the large increase in off-cycle wage increases during the inflationary period found in the ADP data. Together, both papers imply that keeping up with inflation during this episode was costly, whether through job search, conflict, or passive real wage loss. Both frameworks also share a complementary implication for firms: to the extent that adjustment costs allow employers to maintain minimally indexed wage norms, it confers a degree of market power that should be visible in firm profitability during the inflationary episode — a prediction we examine directly in Section 7.1.
A growing literature documents the political consequences of these real wage declines. Steinberg et al. (2025) use a pre-election survey experiment and find that priming voters with information about inflation reduced approval of the Biden-Harris administration, with effects concentrated among Independents and Democrats. Riãno and Trebbi (2026) use county-level variation in local prices and wages and find that it is real wage decline, not higher inflation per se, that predicts Republican electoral gains — directly reinforcing our central argument that material purchasing power losses, rather than rising prices in the abstract, drive individual discontent during inflationary periods. Baccini and Weymouth (2025) document analogous patterns in the 2022 midterms, suggesting these links between real purchasing power and electoral behavior are not unique to the 2024 presidential cycle. Using micro data for large and representative sample of the U.S. workforce, we document that the wages of a large share of Americans did, in fact, substantially decline from early-2021 through late-2024 explaining their overall discontent with their economic situation expressed via their voting behavior.
Finally, our documentation of firm-level wage-setting norms connects to a long literature on nominal wage rigidity and fairness. Bewley (1999) concludes from interviews with managers that firms resist nominal wage cuts primarily to protect worker morale, while Akerlof and Yellen (1990) and Kahneman et al. (1986) formalize the role of fairness norms in wage-setting and show that workers withdraw effort — and firms restrain exploitation of demand shocks — when perceived fairness is violated. These papers establish that nominal wage rigidity reflects social norms rather than purely technological constraints, which is exactly the kind of norm our ADP data reveals at the firm level. Hazell and Taska (2025) provide complementary evidence using posted vacancy data that wages for new hires are asymmetrically rigid — downwardly sticky but responsive to labor market tightening — suggesting that the structural features underlying our findings are broad. Grigsby et al. (2021b) and Grigsby et al. (2021a) use the ADP payroll data during prior periods showing, among other things, that nominal wages of job-stayers are downwardly rigid. All of this prior literature focuses on various aspects of downward nominal wage rigidity. Our paper shows a similar pattern with wage norms for job-stayers being upwardly rigid during periods of rising temporary inflation.
2 Data Description
In this section, we describe the data used in the paper and provide some motivating descriptive statistics using the data.
2.1 ADP Data
The majority of our analysis uses administrative individual panel data from ADP. ADP is a large, international provider of human resources services including payroll processing, benefits management, tax services, and compliance. ADP has over 1 million clients worldwide, and currently processes the payroll for one-sixth of the U.S. labor force. Our starting analysis sample contains the payrolls for roughly 16 million U.S. workers per month. Our sample includes firms with 50 or more employees to capture wage setting norms within and across employers. We restrict our analysis to payroll observations between December 2015 and December 2025.
Firms contract with ADP to process the payroll for all workers within their firm. As a result, we observe how nominal wages are adjusted for all workers within a given firm during a given month. This feature of the data allows us to examine the similarity of nominal wage changes across workers within a firm during a given time period. Our sample dataset includes roughly 60,000 unique firms each month.
The data contain monthly aggregates of anonymized individual paycheck information, as well as all relevant information needed for human resources management. Crucially, we observe the statutory per-period before-tax contract rate for all employees. We refer to this as a worker’s “base” hourly wage. For workers paid hourly, the worker’s base wage is simply their contracted hourly wage at the firm. For salaried workers, their base wage constitutes the pay that the worker is contractually obligated to receive each pay period (weekly, bi-weekly, or monthly) expressed in units of an hourly wage assuming a 40 hour work week. Given the data are aggregated to the monthly level, the base wage is measured as of the last pay period of the month.
In addition to the administrative base wage information, the ADP data contain all other information that would appear on the worker’s paycheck, such as the worker’s gross earnings per pay period and any bonuses that were paid to them by the firm. The data also contain other payroll information including whether the worker is paid hourly, the frequency at which the worker is paid and the number of hours paid during the month for hourly workers. We also observe various additional geographic and demographic characteristics of a worker such as gender, age and worker tenure as well as details about the job such as firm size, and industry.
We separately examine nominal wage adjustments for “job-stayers” and “job-changers”. Our primary job-stayer analysis examines year-over-year nominal base wage changes for a given worker who remains employed at the firm continuously for 13 consecutive months. For example, to measure the change in nominal base wages for a job-staying worker between March 2022 and March 2023 the worker would have to be continuously employed at the firm for all months between March 2022 and March 2023. We have between 9 and 11 million job-stayers per month in all months of our analysis during our sample period. Our primary job-changer analysis examines year-over-year nominal wage adjustments for a given worker currently working at firm i in month t who we can find working at a separate ADP firm j in month t − 12 (one year earlier). The ADP data is so large that we have about 1 to 2 million job-changers each month. In some of our analysis, we will define job-stayers and job-changers over four or five-year periods.
2.2 CPS Data
We benchmark the wage dynamics of workers within our ADP sample to the wage dynamics of workers within the Current Population Survey (CPS) as reported by the Atlanta Fed’s Wage Tracker Index. CPS respondents are surveyed for four consecutive months (waves 1-4), leave the survey for the next 8 months, and then are surveyed again for another four consecutive months (waves 5-8). In waves 4 and 8, which are one year apart, CPS respondents are asked about their hourly wage (if they are hourly workers), their usual weekly earnings and their usual weekly hours worked. This data allows the creation of a worker’s base wage in those two waves where the base wage of workers paid hourly is their reported hourly wage; the base wage of salaried workers is usual weekly earnings divided by usual weekly hours.
The Atlanta Fed uses the CPS data to create a measure of a given worker’s annualized base wage growth by taking the percentage change in base wages between waves 4 and 8. Pooling across all workers in wave 8 during each month, they then report the median nominal wage growth for U.S. workers at the monthly level.
We download the CPS wage data directly from the Federal Reserve Bank of Atlanta’s Wage Growth Tracker website. We use their monthly measure of “overall median nominal wage growth weighted using 1997 weights” when making our CPS wage indices. To make the aggregate CPS real wage index, we first make a nominal wage index using the reported nominal wage growth rates for each month. We normalize the nominal wage index to a value of 1 in January of 2017. We then deflate the nominal wage index into real January 2017 prices by appropriately deflating by the corresponding monthly CPI-U. This is how the dashed line in Figure 1 was created.
2.3 Representativeness of the ADP Data
The ADP data has been shown to be quite representative of the US labor market. For example, as seen from Figure 1, the real wage index computed using our ADP sample matches nearly identically the real wage index computed using CPS data as reported by the Atlanta Fed. Furthermore, as documented in Grigsby et al. (2021b) and Cajner et al. (2019), the overall ADP data is very representative of the US workforce based on demographic characteristics and labor force dynamics. Comparing to U.S. Census data, Grigsby et al. (2021b) shows that the ADP data also matches well both firm size and industry composition conditional on restricting the Census data to firms with at least 50 employees. In our baseline analysis, we do not reweight the ADP sample to match the QCEW industry-by-firm-size distribution, as doing so has virtually no effect on the results. Appendix Figure R1 shows that the aggregate real wage index in Figure 1 is nearly identical with and without reweighting. This insensitivity reflects the broad representativeness of the ADP sample and the limited systematic variation in nominal wage adjustments across industries and firm sizes. We further illustrate this point throughout the paper by discussing our results separately by industry.
2.4 Descriptive Statistics of Nominal and Real Wage Growth: ADP Sample
Panel A of Figure 2 displays the year-over-year median nominal wage growth of job-stayers and job-changers in our ADP sample. Panel B shows the corresponding year-over-year median real wage growth rates. A few things are of note from the two panels. First, the median nominal wage growth of job-stayers was exactly 3% from January 2016 through March 2021. As we show below, this results from the fact that firm wage norms are prevalent, with roughly 14% of all U.S. workers receiving a nominal wage increase of exactly 3.00 percent in most months during our sample period and 21% receiving an increase between 2.9 and 3.1 percent. Second, the median nominal wage growth of U.S. job-stayers did not keep up with inflation during the inflation period. During the 2017-2019 pre-period, the median real wage of job-stayers was increasing by about 1% per year. However, between all months between early-2021 and early-2023, median real wage growth was negative for job-stayers. During early-2022, the median real wage of job-stayers contracted by roughly 4%. Third, there was no rebound in the median real wage growth of job-stayers when the inflation period ended. From mid-2023 through late-2025, the median real wage growth of job-stayers was roughly back to pre-period levels of roughly 1% per year. Finally, the median nominal wage growth of job-changers increased sharply during the inflationary period. As seen from the dashed line in panel B, median real wage growth of job-changers increased by about 4% per year during the inflationary period. As we discuss below, the wage growth of job-changers did not systematically deteriorate during the inflationary period.
The above data are used to make the ADP real wage index shown in Figure 1. In particular, we pool together the nominal wage growth of job-stayers with the nominal wage growth of job-changers in each month to create an aggregate median nominal growth rate. Using the ADP data, we can compute the share of ADP employees in month t − 12 who remain continuously employed at the same firm through month t and the share who are working at another ADP firm in month t. Adjusting the job-changing share for the fact that our sample of ADP firms comprise approximately one-seventh of U.S. employment, we create a series of the relative weights of job-changers and job-stayers to construct a pooled nominal wage growth rate. We make a nominal wage index using the aggregate growth rates where we normalize the index to 1 in January 2017. We then deflate the nominal wage index by the corresponding monthly CPI, with January 2017 as the base year, to create the aggregate real wage index shown in Figure 1.
While the ADP and CPS real wage measures track each other closely, it is important to highlight a key limitation when using the CPS data to separately measure the wage growth of job stayers versus job changers. The CPS does not contain information on whether an individual switches to another firm between waves 4 and 8 and, as a result, job-changing status must be imputed. The CPS data processed by the Atlanta Fed imputes whether the individual changed jobs based upon whether the individual reports that either their occupation or industry changed between the 9 months spanning waves 4 and 6. This induces two types of measurement error. First, some job-changers will be included in the job-stayer sample if they changed firms but remained in the same occupation or industry. Second, some job-stayers will be included in the job-changer sample if their occupation or industry was misreported. It has been found that there is a large amount of measurement error in the CPS occupation and industry codes (e.g., Kambourov and Manovskii (2013)).
These two types of measurement error will narrow the gap in the wage change between job-stayers and job-changers. Panels A and B of Figure 3 show the median nominal wage growth of job-stayers and job-changers, respectively, in the CPS data (dashed line). For comparison, we also re-display the ADP nominal wage growth of job-stayers and job-changers (solid line). Consistent with the direction of the measurement error, the median nominal wage growth of job-stayers is slightly higher in the CPS data while the median nominal wage growth of job-changers is substantially lower in the CPS data. The gap in nominal wage growth for job-changers between the ADP and CPS data is particularly striking during the 2021–2023 inflation episode, when ADP records median nominal wage growth for job-changers exceeding 12 percent while the CPS measure peaks at about 8 percent. These results suggest that researchers should proceed with caution when examining wage dynamics separately for job-changers and job-stayers using the CPS data.
3 Wage Growth Within Firms
There are two notable features of the nominal and real wage dynamics of job-stayers shown in Figure 2 that motivate the analysis in this section. First, median real wages of job-stayers fell sharply during the inflation period, even as their median nominal wages rose; nominal wage growth was positive but simply not enough to keep pace with inflation. Second, the median nominal wage growth of job-stayers was exactly three percent in every month from January 2017 through early 2020. A persistent exact three percent median nominal wage growth is difficult to reconcile with a model in which firms continuously reoptimize wages worker-by-worker in response to changing market conditions. It points instead to something more institutional: many firms maintain a modal annual raise of exactly 3% that applies broadly and uniformly to a large share of their continuing workers.
In this section, we look inside the median to characterize the full distribution of real wage changes for job-stayers, document the firm-level wage norms that generate that distribution, and show that those norms adjusted only modestly during the inflation surge. We also show that an increasing number of workers escaped their firm’s wage norm during the inflationary period by receiving multiple wage adjustments within a year — a pattern consistent with workers taking costly actions to negotiate for higher pay. The result, for job-stayers, was a distribution of nominal wages that shifted up with inflation, but also a distribution of real wages that shifted meaningfully down.
3.1 The Distribution of Annual Nominal Wage Growth, Job-Stayers
Figure 4 reports the distribution of annual nominal base-wage changes for job stayers, defined as those workers continuously employed at the same firm for at least thirteen consecutive months. Panel (a) compares the pre-pandemic period (2016–2019) with the high-inflation period of 2021–2023. Panel (b) repeats this comparison but showing the recent period of 2024–2025 against the same pre-pandemic baseline. Several features of these distributions are worth noting.
In the pre-pandemic period, the distribution is concentrated in the range of two to four percent annual nominal growth. Approximately 21.9% of job stayers received no nominal wage change over the preceding year. Conditional on a nominal wage increase, the modal change was between 2 and 3 percent, with 51.4% receiving between 1 and 4 percent, 26.0% between 4 and 10 percent, and 5.6% more than 20 percent. The figure is truncated at zero because nominal wage cuts were exceedingly rare, with only 1.7% of workers in this period getting nominal wage cuts. These patterns are broadly consistent with earlier findings using ADP data from the 2008–2016 period reported by Grigsby et al. (2021b). The somewhat lower incidence of zero nominal wage growth in our pre-pandemic sample, relative to their earlier period, likely reflects the stronger labor market conditions that prevailed between 2016 and 2019.
During the high-inflation period of 2021–2023, shown in Panel A, the distribution of nominal wage growth shifted to the right. The share of job stayers with no nominal wage change only fell minimally to 19.1%. The largest shifts occurred in the interior of the distribution. Conditional on receiving any nominal wage increase, the median increase rose to between three and four percent. Additionally, conditional on receiving a raise, the share receiving an increase between 1 and 4 percent fell to 35.1% while shares receiving an increase between 4 and 10 percent and above 20 percent rose to 34.0% and 8.7%, respectively. Workers receiving increases above 20% likely include those who received promotions or experienced other substantive changes in their roles. Despite the rightward shift in the distribution, more than half of job-stayers had annual nominal wage growth below 4% even as year-over-year inflation rose above 7%.
After the inflation period, the nominal wage growth distribution for job-stayers mostly returned to the pre-period baseline. The 2024–2025 distribution is shown in Panel B. The fraction of workers with the large pay increases generally associated with promotions returned to pre-pandemic level of around 5.0%, and the distribution largely resembles its pre-pandemic counterpart, with the exception that the modal wage change shifted up slightly. In 2024–2025, workers were getting more wage increases between 3-5% and fewer increases between 1-3%. During this period, both the annual inflation rate and the average nominal wage growth increased by about one percentage point relative to the pre-pandemic period.
3.2 The Distribution of Cumulative Real Wage Growth, Job-Stayers
While Figure 4 shows that the distribution of nominal wages clearly shifted upward during the recent inflationary period, workers care about their real wages, which are governed by the relative movement of inflation and nominal wages. As we saw in Figure 2, real wages of the median worker fell sharply during the inflationary period. Moreover, looking only at the distribution of annual wage changes leaves open the possibility that workers who received relatively small increases in one year may have been compensated with larger increases in subsequent years, so that the cumulative experience of a long-tenured job stayer may have been more or less favorable than these annual snapshots suggest.
To trace how these cumulative losses accumulated as the inflationary period progressed, Table 1 reports the share of job-stayers experiencing a real wage decline over progressively longer horizons — one, two, three, and four years — beginning in December 2020, alongside the analogous pre-period statistics beginning in December 2015. We then turn to the full distribution of four-year changes in Figure 5. When computing the cumulative real wage changes over multiple years we restrict our sample to workers who were continuously employed at the same firm over the corresponding time period. For example, for the two-year wage change, workers must have remained continuously employed at the same firm between December 2020 and December 2022. We compute real wage changes by deflating the worker’s nominal wage in a given month by the corresponding CPI in that month.
|
Dec 2020 Job-Stayers: Share w/ Real Wage Decline |
Conditional Mean Real Wage Decline |
Share Job-Stayers |
Dec 2015 Job-Stayers: Share w/ Real Wage Decline |
Conditional Mean Real Wage Decline |
Share Job-Stayers |
| One-Year |
66.5% |
−5.1% |
67.4% |
37.7% |
−2.2% |
74.2% |
| Two-Year |
57.4% |
−7.7% |
48.3% |
29.2% |
−3.9% |
55.4% |
| Three-Year |
49.3% |
−8.3% |
36.9% |
24.4% |
−5.3% |
41.9% |
| Four-Year |
43.0% |
−8.9% |
29.1% |
21.4% |
−6.9% |
31.9% |
The first three columns of Table 1 summarize the share of job-stayers with a real wage decline over horizons beginning in December 2020; the last three columns report the analogous pre-period statistics beginning in December 2015. As shown in the top row, two-thirds of job-stayers experienced a real wage decline during 2021, averaging roughly 5 percent among those who fell behind. The U.S. experienced a 7 percent inflation rate during 2021, but, as we show later, the median worker during this period received a nominal wage increase of only about 3 percent. These losses were large relative to a lower-inflation period. For comparison, during the pre-period, a little over one-third of workers experienced a real wage decline, with the mean decline for these workers being a modest 2.2 percent.
The fact that real wages fell during 2021 when inflation was high is not surprising. Most sticky-wage models predict real wage declines during a year of inflation, given that nominal wages adjust with a lag. What is more surprising is how persistent these losses were: half of continuously employed workers still had lower real wages three years later, and 43 percent remained below their starting real wage four years later. Moreover, as the horizon lengthens, the share of stayers with a real wage decline falls from two-thirds at one year to 43 percent at four, but the mean decline among those who fall behind grows from roughly 5 percent to nearly 9 percent. Some workers were able to escape declining real wage growth as time progressed, but a substantial minority have nominal wages that persistently failed to keep up with the burst of inflation.
We now turn to the full distribution of four-year changes underlying the last row of Table 1, shown in Figure 5. Panel (a) reports the probability density functions of the four-year real wage changes of job-stayers during the inflation period and the pre-period, while Panel (b) reports the corresponding cumulative distribution functions. In the pre-period, real wage growth for the median worker was between 4 and 6 percent over the four-year period spanning 2016–2019. Twenty-one percent of workers experienced negative real wage growth during this period, with almost 5 percent seeing real wages fall by around 8 percent as a result of receiving zero nominal wage growth in every period, given the inflation rate averaged about 2 percent per year. Among those with negative real wage growth, the median decline in real wages was around 4 percentage points. For those who saw a rise in their real wage, the median real wage growth was roughly 6 to 10 percentage points — or 1.5 to 2 percent per year.
The growth in real wages in the four-year period between 2020 and 2024 looked meaningfully different. The distribution of cumulative wage growth during the inflation period lies substantially to the left of its pre-pandemic counterpart, with the leftward shift being reasonably uniform across the distribution. During this period, the median worker saw real wage growth of only between 2 and 4 percent (0.5 to 1.0 percent per year).
The share of workers taking persistent real wage losses was also far larger during the inflation period. As noted in the last row of Table 1, fully 43 percent of four-year job-stayers experienced declines in their real wages. Moreover, among those with negative wage growth, the decline was large, with a mean decline of nearly 9 percentage points and a median declining of roughly 7 percentage points. In other words, over 20 percent of all workers within the United States who stayed with their employers experienced a real wage cut of roughly 7 percent during the four-year period spanning 2021–2024.
Taken together, Figures 4 and 5 and Table 1 establish a key feature of wage growth within firms during the inflationary period. For workers who remained at their firms, nominal wages rose but not nearly enough to keep up with inflation, resulting in meaningful declines in real wages for a substantial share of workers. These declines persisted through 2024.
3.3 Understanding Within-Firm Wage Growth: Strong Wage Norms
The rightward shift in the distribution of annual wage changes during 2021–2023, while notable, was far smaller than the inflation shock that drove it, leading to large declines in real wages for many job-stayers and much lower real wage growth than normal for others. The obvious question is why. We now show that the answer lies in a key institutional feature of within-firm wage setting: most firms apply a single modal annual raise to the large majority of their continuing workers, and this wage setting norm moved only modestly during the inflationary episode.
We begin by showing that even in the overall distribution of annual wage changes for job stayers, the discreteness in Figure 4 masks even sharper bunching of wage growth around round numbers. Figure 6 breaks down the distribution of annual wage changes by highlighting how many nominal wage changes occurred at exactly whole numbers (e.g., 1, 2, 3, 4, etc.), exactly half numbers (e.g., 1.5, 2.5, etc.), or any other number during the 2017-2019 pre-period. The figure shows that between 2016 and 2019, among those workers who received a wage change of between 1 and 6 percent, a full 14% had nominal wage changes of exactly 3% while 21.1% were between 2.9 and 3.1 percent. Roughly 42% of all nominal wage increases below 6% were within 0.01 percentage points of a whole or half number. This stark bunching at round numbers is difficult to reconcile with a model in which firms individually reoptimize each worker’s wage in response to that worker’s idiosyncratic productivity or outside option. It instead suggests that firms adopt simple wage-setting conventions, wherein they give many workers a uniform 2, 2.5 or 3 percent wage increase.
Figure 6 establishes that nominal wage changes cluster sharply at round numbers in the aggregate. We now assess the extent of the dispersion in nominal wage growth within a firm and how that dispersion changed during the inflation period. For each firm-year, we identify the “on-cycle” month as the month in which the largest share of workers receive a nominal wage adjustment and define the firm’s wage norm as the modal adjustment made in that month. At nearly all firms, the vast majority of annual wage adjustments occur in this single month. When computing the modal nominal wage change during the on-cycle wage adjustment month, we group nominal wage changes within the firm into one percentage point bins centered around whole numbers. We restrict our sample to those workers within the firm who experienced one nominal wage change during the calendar year. To ensure that the inferred modal change reflects a genuinely broadly applied rule rather than idiosyncratic noise, we further restrict the sample to firm-years in which at least 30 percent of workers received a positive nominal wage increase and at least 30 percent of those received the modal increase. The resulting measure captures the annual raise that a continuing worker at that firm would expect to receive absent a worker-specific adjustment.
Figure 7 shows that during a given year, most workers within a given firm receive a nominal wage increase of a similar size. Specifically, in Figure 7, we plot the distribution of nominal wage changes for all workers receiving a wage increase relative to the firm’s own wage growth norm in that year. Among workers who received a wage increase within 5.5 percentage points of the firm’s norm, almost 60 percent received a wage increase that was within half a percentage point of their firm’s mode. Again, the data reveal that firms for the most part are setting compensation growth similarly for most of their workers as opposed to individually tailoring wage growth to each worker.
Because this firm-level wage norm applies to the majority of workers, a key input to understanding the behavior of wages within the firm during the inflation period is to understand how this firm-level wage norm evolved over this period. Figure 8 reports the cross-firm distribution of these firm-level wage norms, weighting firms by their number of employees. Panel (a) compares the pre-pandemic period to the high-inflation period and Panel (b) compares the pre-pandemic period with 2024–2025. Before the pandemic, the distribution was tightly concentrated. Indeed, 56% of workers were employed at firms whose modal wage change was between 2.5 and 3.5 percent, consistent with the large bunching at precisely 3% seen in Figure 6.
During the high-inflation period, firms only marginally adjusted their wage rules. 46.5% of workers were still at firms with a wage norm of between 2.5 and 3.5%. Roughly 88.9% of workers were employed in firms that had a wage growth norm in the 2-4 percent range before the pandemic. During the inflation period, that fraction fell modestly to 76.2%, with a slight shift away from the 2–3 percent range toward 4–5 percent. At the peak of the inflation period with prices increasing by over 7% per year, most workers were employed in firms with a wage growth norm in the 2-4 percent range. By 2024–2025, the modal wage norm of around 3% growth was restored, but more firms adopted wage norms around 4% and fewer held a norm of 2%.
Figure 9 makes the point that firms did not systematically adjust their wage norms during the inflation period by looking at the evolution of these firm-level wage rules over time. The figure plots the employment-weighted average modal wage change across firms alongside inflation rate from 2016 through 2025. In the pre-pandemic period, firm-level wage rules were relatively stable at a median of 2.7%, modestly above the rate of inflation. Beginning in 2021, inflation rose sharply, peaking at approximately seven percent in 2022. The average modal wage change also rose, reaching a peak of 3.5% in 2022 and 2023. By 2025, the median firm had a wage rule granting increases of three percent, roughly in line with inflation in that year. The stickiness of firms’ wage rules in the face of inflationary pressure contributed to the systematic fall in real wages for job stayers.
3.4 Wage Adjustments Outside the Firm’s Wage Rule
The preceding results show that the median firm’s wage rule responded only modestly to inflation. However, a second margin of within-firm adjustment is the extent to which individual workers deviated from this wage norm through off-cycle wage increases. In this subsection, we examine this margin.
To begin, Figure 10 plots the fraction of job stayers who received more than one nominal base-wage change within a twelve-month period, measured annually from 2016 through 2025. In the pre-pandemic period, approximately 16 to 18 percent of workers received more than one wage change within a year. However, in 2021 and 2022, the fraction of workers receiving multiple wage changes within a year rose sharply to 27 percent. By 2023, this share had begun to decline, and by 2025 it had returned to slightly below its pre-pandemic level. The spike in the frequency of wage changes during the inflationary period indicates that firms became substantially more likely to make off-cycle wage adjustments outside the firm’s standard annual review cycle. This pattern is consistent with worker actions being increasingly important for wage growth during this period (Guerreiro et al., 2026; Afrouzi et al., 2026).
Figure 11 compares the distributions of on- and off-cycle nominal base-wage increases, pooling observations from 2016–2025. The distributions differ sharply. On-cycle increases are tightly concentrated between 2 and 4 percent, consistent with the modal raises documented above. Off-cycle increases are substantially more dispersed and skewed toward larger values: two-thirds exceed 4 percent, one-third exceed 8 percent, and almost 20 percent exceed 12 percent. These off-cycle adjustments likely reflect worker-specific events such as promotions, renegotiations, or merit increases.
Figure 12 shows how the median on-cycle and off-cycle wage changes evolved through this period. The default on-cycle norm of a 3% increase for on-cycle wage changes is again evident in the figure. For the years 2016-2020, the median on-cycle wage change was exactly 3%. Off-cycle wage changes are consistently above on-cycle changes throughout the sample period, but the gap widened considerably during 2021 and 2022, when the median off-cycle increased by around 1.5 percentage points while the median on-cycle increase rose only 1 percentage point.
3.5 Bonus Adjustments: Job Stayers
All of the above figures focus on movements in employees’ base wages. However, another margin of adjustment that firms could use to compensate workers for their minimally indexed wage rule is to adjust other forms of compensation, namely bonuses. Indeed, on average, 18 percent of workers received a bonus in December from 2017–2019, but that number rose to 22 percent from 2021–2023. However, despite the increased prevalence of bonuses during the inflationary period, they did very little to stem the real wage losses that workers experienced.
The cumulative real wage distribution for job-stayers is nearly identical with and without bonuses. This is because bonuses are generally small as a fraction of total compensation for most workers, and one-off payments are poorly suited to offset the kind of real wage erosion that accumulates continuously over a multi-year inflationary episode. For example, a bonus received in December 2022 may partially offset the real wage loss in that year, but it does nothing to restore the base wage from which all future raises are calculated. Because firms’ wage rules apply to base wages rather than total compensation, a worker who receives a bonus but no adjustment to their base wage will continue to fall behind inflation in every subsequent year, with the gap compounding over time.
3.6 Summary
Taken together, the evidence in this section points to a coherent picture of within-firm wage setting during the inflationary episode. Firms operated with strong wage rules that determined the nominal wage growth for the majority of workers, and adjusted these rules upward only modestly in response to inflation. The resulting gap between the modal wage change and inflation was the primary driver of real wage erosion among most job stayers. At the same time, firms showed considerably more flexibility in responding to individual worker circumstances, delivering substantially larger increases to workers who took actions that resulted in off-cycle wage adjustments. These off-cycle increases helped to moderate, but did not eliminate, the real wage losses experienced by workers who remained within their firms throughout the inflationary episode.
4 Overall Wage Growth: Accounting for Job-Changers
The preceding section established that within-firm wage adjustment during the inflationary episode was constrained by the stickiness of firms’ wage rules. An alternative mechanism by which workers could recover lost real wages was to change employers. Indeed, the 2021-2023 period was one in which there was a notable increase in the fraction of workers who switched employers. Specifically, during 2016-2019, an average of 2.24% of employed workers switched jobs each month, while that number rose to 2.38% per month during the 2021-2023 inflationary period (Afrouzi et al. 2026). Figure 2 also shows that the real wage growth of workers who changed firms, the “job-changers”, appeared to keep up during the inflationary period. In this section, we characterize the full distribution of wage changes for job-changers, assess how that distribution has changed during the inflation period, and compute a measure of cumulative four year wage growth for all workers in the economy combining both information on job-changers and job-stayers.
4.1 Wage Growth of Job Changers
Before showing the full distribution of wage changes for job-changers, we provide additional evidence on how the median wages of job-changers evolved relative to job-stayers as the inflation rate changed. Figure 2 above shows that nominal wage growth for job changers in any given period is higher than the nominal wage growth for job stayers, and the gap widened substantially during the inflationary period as job stayers experienced relatively modest nominal wage growth and job changers experienced large increases. Figure 13 makes this point more precisely by plotting, for each calendar month, median annual wage growth against the year-over-year inflation rate separately for job stayers and job changers. As we discussed in detail in Section 3, the nominal wages of the median job stayer in each month were very weakly indexed to inflation. This is especially true for workers subject to the firm’s wage norms, but also true even after accounting for any deviations from the firm’s wage norm that workers received. This contrasts with the median job changer, whose nominal wage growth was not only higher on average but tracked inflation nearly one-for-one. Formally, regressing median monthly wage growth on year-over-year inflation yields a pass-through of 0.96 for job-changers and just 0.27 for job-stayers. The slope of the firm’s wage norm with respect to inflation is even lower at 0.082. Therefore, in any given year, switching employers was the more reliable means of obtaining nominal wage growth that kept pace with contemporaneous inflation.
The time-series evidence on median wage growth, however, masks considerable heterogeneity in the experience of individual job changers. Figure 14 reports the distribution of annual nominal base-wage changes for these job changers, comparing the pre-pandemic period with the high-inflation period of 2021–2023 (Panel a) and the recent period of 2024–2025 (Panel b). Consistent with Grigsby et al. (2021b), in all periods, the distributions for job changers are strikingly more dispersed than those for job stayers documented in Figure 4. Both large nominal wage gains and large nominal wage losses are common among changers.
Comparing Panel (a) with the corresponding stayer distribution reveals that the inflationary episode had a qualitatively similar effect on job changers as on job stayers: both distributions shifted to the right. What differed was the magnitude. For job stayers, the rightward shift was modest, with the median increase rising by roughly one to two percentage points relative to the pre-pandemic period. For job changers, the shift was substantially larger. Among job changers, the fraction of job changers with negative wage growth dropped from 28.6% to 24.9%. The result was a widening of the already large gap in nominal wage growth between job changers and job stayers during the inflationary episode. Panel (b) shows the corresponding distribution for 2024–2025. As inflation receded, the job-changer distribution shifted back toward its pre-pandemic shape, and the gap in nominal wage growth between job changers and job stayers narrowed as well.
4.2 The Overall Effect of Recent Inflation on U.S. Real Wages
The previous section showed that the median wage gains available to job changers during the inflationary episode were substantially larger than the within-firm adjustments available to job stayers. This raises the question of whether cross-firm mobility was sufficient, in aggregate, to offset the real wage erosion documented in Section 3 for job-stayers. Figure 15 addresses this question by reporting the distribution of cumulative real base-wage growth for all workers — both job stayers and job changers combined — over the two four-year windows of December 2015 to December 2019 and December 2020 to December 2024. Panel (a) reports the probability density function and Panel (b) reports the cumulative distribution function.
Panel (b) of Figure 15 contains the central result of the paper. Even after incorporating the large wage gains available through job changing, 37.0% of U.S. workers experienced a cumulative decline in real wages over the four years from December 2020 to December 2024. This is 1.6 times larger than the 23.6% of workers who saw a real wage decline over the comparable pre-pandemic window. Moreover, this share is only slightly lower than the 42.8% of job-stayers that experienced real wage declines during the 2021-2024 period which shows that incorporating job-changers does not meaningfully alter the findings. And for those who fell behind during the 2021-2024 period, the losses were
