A New Indicator of Common Wage Inflation

Abstract

We develop a new indicator of common wage inflation (CWI) by extracting and aggregating the common components from detailed industry-level nominal wage data. We show that the CWI is better aligned with the unemployment rate gap for the post-Great Recession period than are other indicators of wage inflation. The CWI indicates a tighter economy than popularly cited wage measures during the expansion after the Great Recession, and the industry-specific factors largely account for the subdued wage growth despite the continued tightening in the labor market.