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U.S. Wage Growth Shouldn’t Spur Inflation, OECD Says

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Key Takeaways

  • The Organisation for Economic Co-operation and Development said Tuesday that U.S. wages have risen faster than prices over the last year, though not to pre-pandemic levels.
  • The OECD expects the unemployment rate will remain around 4% in the U.S. through next year.
  • The group also said it sees “no signs” of a price-wage spiral, meaning wages should be able to continue rising without causing prices to increase substantially.

Real wages in the U.S. should be able to rise to pre-pandemic levels without significantly affecting inflation, the Organisation for Economic Co-operation and Development (OECD) said Tuesday.

“As real wages are recovering some of the lost ground, profits are beginning to buffer some of the increase in labour costs,” the OECD wrote in a report on the U.S. job market. “In many countries, there is room for profits to absorb further wage increases.”

While wages have risen faster than prices over the last few years in the U.S., inflation-adjusted real wages are still about 0.8% below their 2019 levels, the OECD said. The pandemic caused a drop in real wages, with COVID-related shutdown measures causing issues along the supply chain for a variety of products, driving prices higher.

The OECD said that wages have made up much of those losses, but still have room to rise further without affecting profit margins enough that prices jump again.

There are no signs of a “price‑wage spiral,” the group said.

The U.S. unemployment rate was at 4.1% in June, compared to the 4.9% the OECD reported in May for its 38 member nations. The OECD expects the U.S. rate to remain around 4% through 2025, the report said.

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