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Blog Post · September 19, 2023

Wage Growth Is Struggling to Keep Up with Inflation

photo - Welder Using Torch in Factory

Wage growth has been a bright spot for workers (and perhaps a challenge for business owners), but not when measured against inflation. Inflation in the Western region—which includes California—increased to 3.9% year-over-year in August, slightly higher than the headline inflation numbers at the federal level (3.7%), with much of the increase being driven by an acceleration in energy prices. Higher wages have provided a bit of a buffer but have not protected all workers from the rising costs of gas, food, housing, and other goods and services.

Average hourly wages for private-sector workers have increased 15% relative to January 2020—shortly before pandemic shutdowns disrupted the economy. But inflation-adjusted wages are down 2%.

Inflation has eaten away at wage growth for major sectors like education and health services and professional services; wages in manufacturing and financial services have also failed to keep up with inflation. Construction wages are just breaking even after inflation. Two of the largest sectors in terms of employment have shown growth in wages even after adjusting for inflation: leisure and hospitality (up 6.5%) and trade, transportation, and utilities (4%). However, the average wages in these two sectors remain lower than wages in the other sectors shown here.

As wage growth continues, employment trends are mixed. Employment fell in August by 28,000, a mix of some leaving the labor force and others entering unemployment. However, the statewide unemployment rate (unchanged at 4.6% in August) remains low by historical standards, and statewide private-sector jobs are up 3% relative to January 2020. Leisure and hospitality, the sector initially most impacted by pandemic lockdowns, has recovered the jobs it lost and is even up 0.3%. This is a sign that consumers are continuing to spend even amid economic uncertainty. Mining and logging has seen the largest drop in employment numbers, but this sector only represents 0.1% of total private employment. However, employment in government services, financial services, and other services has yet to recover.

It is not easy to predict how California’s labor market will evolve in the coming months. Inflation is likely to continue to erode wage growth, and the Federal Reserve might take further action to control price growth, possibly further slowing the economy and hampering job growth. As different sectors, regions, businesses, and families may experience different outcomes, it will be important for policymakers to continue monitoring labor markets across sectors and regions and consider the impact of macroeconomic trends on Californians’ well-being and their ability to provide for their families.


Economic Trends Economy employment inflation jobs Poverty & Inequality unemployment wages workers