The "wage lag" in the US in 2025 refers to a few different issues, most notably that real wages have lagged behind inflation over a four-year period, meaning many workers have lost purchasing power since 2021. While nominal wages have grown, some reports indicate that for many, wages have not kept pace with the total increase in the cost of living, with one index showing a deficit of -1.2% since January 2021.
However, in the year leading up to July 2025, wage growth (4.2%) did outpace inflation (2.7%), suggesting recent wage increases are starting to help, according to some sources.
Wage lag based on different timeframes
Four-year lag (2021−2025)
2021−2025): According to Bankrate, wages have lagged behind prices by 1.2% over the past four years, meaning workers' purchasing power is still lower than it was in early 2021.
Year-over-year lag (2024−2025):
For the year ending in July 2025, nominal wage growth of 4.2% exceeded the inflation rate of 2.7%. This indicates that in the most recent year, wages did outpace inflation, and workers' purchasing power increased compared to the previous year.
Factors contributing to the wage lag
High inflation: Prices surged between 2021 and 2022, and while inflation has since moderated, prices have continued to rise faster than wages for a significant period.
Slowed wage growth: After peaking, overall wage growth has slowed down, though it remains positive.
Impact on different sectors: Some sectors, like education, have experienced a more significant lag between wage and inflation growth than others.
Struggling workers: A large portion of the workforce is experiencing financial stress and feels their income has not kept up with the rising cost of living.
In 2025, the U.S. is experiencing a mixed picture regarding the "wage lag." While real wages have seen modest positive growth on an annual basis, the cumulative effect of high inflation since the pandemic means many Americans still feel their pay has not fully caught up to the overall rise in living costs.
Current Situation in 2025
Real
Wage Growth: Data from the Bureau of Labor Statistics for periods ending
in mid-to-late 2025 show that real average hourly earnings (wages adjusted for
inflation) have been increasing modestly. For example, from August 2024 to
August 2025, real average hourly earnings increased by 0.7%. This indicates
that, over the immediate one-year period, wages are currently growing faster
than inflation.
Cumulative Lag: Despite recent positive annual growth, a significant "cumulative wage lag" persists when looking at the period since the start of the pandemic-era price spikes (early 2021). One analysis from August 2025 indicated that pay gains trailed cumulative inflation by 1.2 percentage points over the last four years, highlighting why many households still feel financially squeezed.
Variations by Sector: The experience varies by industry. Sectors such as food services, leisure and hospitality, retail, and healthcare have seen wages outpace inflation, whereas white-collar jobs have generally seen pay lag inflation.
Key Factors
Inflation vs. Wage Growth: Since February 2024, monthly data consistently show that nominal wage growth has outpaced the annual inflation rate (CPI). For example, in July 2025, wages grew by 4.2% while inflation was 2.7%.
Consumer Sentiment: As of November 2025, 58% of consumers reported that their wage gains were lagging behind the pace of inflation, a sentiment that has increased through the year.
Minimum Wage Increases: Numerous states and localities raised their minimum wages in 2025, which has provided a boost to low-wage workers in those specific areas and helped lift wages for nearly one in five Black workers and one in four Hispanic workers nationally.
In summary, while the gap between current annual wage growth and current inflation has narrowed and even become positive in 2025, many U.S. workers still face a wage deficit compared to the overall price increases accumulated since 2021.
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Comments
The trend to lower consumer spending in the “wage-lag group”, continued dependence in offshored goods and improvements in automation have affected the kinds of jobs that are lacking in the US workforce.
Lower paid jobs were impacted by hiring “illegals”. As “illegals” are removed, these jobs should be filled by US Citizens. Rural areas are the worst hit. Prior to “off-shoring” Rural Cities and Counties had sufficient manufacturing jobs and these jobs need to be eventually restored.
The wage surge to 4.2% was largely due to Union Settlements.
Norb Leahy, Dunwoody GA Tea Party Leader
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