American workers' wages are once again losing to inflation—a brutal financial déjà vu of the pandemic years.
This time feels sharper. Many are still digging out from 2021-2022, when companies handed out only modest raises that lagged four-decade-high price spikes. New research from the University of Chicago and ADP lays it bare: from February 2021 to June 2022, real wages—the actual purchasing power of the average paycheck—plunged more than 4%.
The damage stuck. By December 2024, 37% of workers in the researchers' payroll data still earned less in inflation-adjusted terms than they had four years earlier. Those losses were never clawed back. Now the cycle is repeating.
The Iran war juiced oil and gasoline prices, pushing the Consumer Price Index to a 3.4% annual pace in July. Workers' hourly wages rose only 3.2% over the same stretch. Real wages fell again.
"The long shadow of the pandemic's high inflation is still hanging over workers," said Erik Hurst, University of Chicago Booth School of Business professor and paper coauthor. "Workers were already behind the eight ball in terms of affordability, even going into inflationary pressures that started earlier this year from the war in Iran."
Companies stuck to the old playbook
Researchers dug into monthly ADP payroll data covering 16 million workers. Most firms, they found, cling to a rigid raise norm—usually 2% to 4%—and barely budge even when prices explode.
Before the pandemic, that 2-4% bump worked fine. When inflation hit 9.1% in June 2021, companies kept doing the same thing. Workers lost ground.
Hurst knows the routine firsthand: "That's what I got at Chicago, which works well when inflation is at 2%, because it gives us 1% real wage growth. But when inflation exceeds 3%, then real wages start to erode."
The latest oil-driven surge is already crushing consumer sentiment. In August it dropped about 8%, wiping out two months of gains, according to the University of Michigan. "When real wages are low, well-being is low because purchasing power has gone down," Hurst said. "Consumer sentiment is low, despite unemployment being low and employment being relatively high."
An "inflation transfer" from workers to companies
Give a worker a 3% raise when inflation runs 4%, and you've handed them a 1% pay cut. That's an inflation transfer: companies shift the pain of higher prices onto employees.
If productivity holds steady while real wages drop 1%, the firm keeps the same output but pays less. "Real wages are low and firm profits are high, and they are not unrelated to each other," Hurst noted.
The costly escape hatch
Job-hopping is the main way to keep pace. Switchers' wages rose nearly in line with inflation. But it's not free. "People who switch jobs tend to keep up with inflation, which is great, but switching jobs is not free," Hurst said. "You have to expend effort to look for a job, move your family and change your workflow. Some actions workers take to keep up with inflation are themselves inherently costly."
Bottom line: the paycheck math is working against millions of Americans once more.