US wage growth is headed back down to pre-pandemic levels

American employers are slowing their spending on employee wages—a data point that is likely to ease the inflationary concerns of Federal Reserve officials.

American employers spent just 1% more on the wages in the fourth quarter 2022, as compared to the third quarter. This marked a decline from the additional 1.3% they’d spent from the second to third quarter, and from the additional 1.4% they’d spent from the first to second quarter.

Two quarters of consecutive decline shows that employer costs are falling, and that they will thus have fewer reasons to raise prices—a good sign for anyone worried about inflation. It also means, though, that workers currently have less leverage to negotiate higher wages for themselves.

Absent further changes in the economy, employer spending on wages looks to be headed back to the prepandemic trend. In 2018 and 2019, the average increase in this kind of spending was 0.75% per quarter.

US employers are slashing benefits

Employers are also cutting what they offer employees in terms of benefits. Their spending on benefits increased by a mere 0.8% in the fourth quarter and has been declining for three quarters in a row.

Several economists are beginning to understand inflation not as a neutral monetary phenomenon but as a battle between workers and employers over who will get to benefit from labor. This latest data shows that workers are losing that battle.

The Fed knows that its tools (such as the elevation of interest rates) risk increasing inequality. But it relies on its congressional authority to keep hiking until its officials feel comfortable that inflation is headed back down towards its hallowed 2% target.