What it is
Wage growth measures the percentage increase in workers' pay, often tracked on an hourly or weekly basis. It can be nominal, reflecting the actual dollar increase, or real, adjusted for inflation to show changes in purchasing power. Strong wage growth typically indicates a tight labor market where employers must offer higher pay to attract and retain talent, while weak growth suggests slack in the labor market.
The Federal Reserve monitors wage growth closely as a key indicator of inflation, particularly "cost-push" inflation. When wages rise significantly, businesses may pass these higher labor costs on to consumers through increased prices. Data like Average Hourly Earnings from the monthly Jobs Report are scrutinized by investors and policymakers. Sustained wage growth above productivity gains can signal persistent inflationary pressures.
Why it matters
Wage growth impacts your personal purchasing power and is a critical factor for the Federal Reserve in assessing inflation. It influences monetary policy decisions.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice