The large wage ripples were good—not bad—for the U.S. economy: Simulated inflation and real wage paths for flat and partially adjusted nominal wage growth
| Flat wage growth | Partially-adjusting wage growth | |
|---|---|---|
| 2019Q4 | 100 | 100 |
| 2020Q1 | 100.3656368 | 100.3656368 |
| 2020Q2 | 100.7326105 | 100.7326105 |
| 2020Q3 | 101.100926 | 101.100926 |
| 2020Q4 | 100.6814221 | 100.8425658 |
| 2021Q1 | 100.2551024 | 100.5798636 |
| 2021Q2 | 99.82204242 | 100.3128809 |
| 2021Q3 | 99.38232077 | 100.0416804 |
| 2021Q4 | 98.93601907 | 99.76632658 |
| 2022Q1 | 98.73598405 | 99.6847698 |
| 2022Q2 | 98.78796888 | 99.80279288 |
| 2022Q3 | 99.09726979 | 100.1261375 |
Notes: Nominal wage growth in the “flat wage growth” scenario is set at 3.5% and does not change over the course of the inflationary shock. Under the “partially adjusted” path, wage growth increases 0.5% for every 1% acceleration in overall inflation in the simulation. For the first four periods, wage growth is 3.5%, nonlabor input cost growth is 3.5%, productivity growth is 1.5%, and inflation is 2%. Then we shock nonlabor input cost growth and have it rise to 11.5% for four periods and then fall by 2.5% each quarter thereafter until it normalizes.