The relation between nominal and real wage growth

June 4th, 2022

While many celebrate nominal wage increases, there is reason to question whether aggregate wage growth actually benefits workers. Former treasury secretary Larry Summers and M-RCBG research fellow Alex Domash show that faster nominal wage growth above 4% is usually associated with slower real wage growth. They also argue that current wage growth implies sustained inflation above 5%, and that bringing down high wage growth usually requires a recession.  Read the full post from Alex Domash and Larry Summers.