Inflation and Wage Growth Since the Pandemic

2022-17 | April 1, 2023

Following the worst of the COVID-19 pandemic, inflation surged to levels last seen in the 1980s. Motivated by vast differences in pandemic support across countries, we investigate the subsequent response of inflation and its feedback to wages. We exploit the differences in pandemic support to identify the effect that these programs had on inflation and the passthrough to wages. Our empirical approach focuses on a novel dynamic difference-in-differences method based on local projections. Our estimates suggest that an increase of 5 percentage points in direct transfers (relative to trend) translates into about a peak 3 percentage points boost to inflation and wage growth. Moreover, higher inflation accentuates the role of inflation expectations on wage setting dynamics.

Article Citation

Nechio, Fernanda, and Oscar Jorda. 2022. “Inflation and Wage Growth Since the Pandemic,” Federal Reserve Bank of San Francisco Working Paper 2022-17. Available at https://doi.org/10.24148/wp2022-17

About the Authors
Òscar Jordà
Òscar Jordà is a senior policy advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Òscar Jordà
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Fernanda Nechio is a vice president in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Fernanda Nechio