Wage Gain Slowdown May Point to Cooling Inflation

April 5, 2022

Wages continued to climb in March, but the pace of gains has slowed in recent months, suggesting that employers are feeling less pressure to compete over workers, which could ease inflationary pressures.

Average hourly earnings were up by a seasonally adjusted 0.4% in March from the month before, an acceleration from February’s weak 0.1% gain, according to the Labor Department. Both months were below the average 0.5% gain seen in the previous six months.

The slower pace of wage gains could be a sign that the labor market is starting to cool as more Americans reenter the workforce. The labor participation rate, which tracks the share of the adult population who is either working or actively looking for work, climbed to 62.4%. That’s the highest level since March 2020, but still lower than before the pandemic began.

Wages for workers in industries with the biggest labor shortages continued to climb. Pay for construction workers was up 6.2% in March from the year before, the biggest annual increase in 40 years. Workers in the transportation and warehousing sector have seen their wages increase 11.1% in the past year, the highest ever in records that go back to 1973. Hospitality and leisure workers have seen their wages jump 14.9% in the last year, but wage gains have been flat or declined for the last three months, and we may see similar wage pressure easing in other parts of the economy on the horizon.

Slowing wage growth could reduce the pressure for businesses to raise prices on their products to offset higher labor costs, which could lessen inflationary pressure.


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