Sticky pay norms left 37% of US workers with falling real wages, 2021–2024

An ADP Research and University of Chicago team (Erik Hurst, Christina Patterson, Nela Richardson, and Ye Liv Wang) mined administrative payroll records covering roughly 16 million US workers a month to explain why pay failed to track prices during the 2021–2023 inflation spike. Their central finding is that most firms apply a single ‘modal’ annual raise — a wage-growth norm — to nearly all their staff, and those norms barely moved even as CPI peaked near 9%. With raises still anchored to pre-pandemic expectations of 2–4% while prices climbed faster, workers who stayed put lost ground in real terms.

The cumulative damage was broad. Among people employed continuously at the same firm from late 2020 through 2024, 43% finished with lower real wages than they started, shedding about 9% on average when they fell behind. Changing jobs was the main escape hatch — job-switchers’ pay rose almost one-for-one with inflation — but too few workers moved for it to shift the aggregate. Even counting the job-changers, 37% of all workers saw real wages decline across the four years, and by late 2025 the real-wage index sat roughly 7% below its extrapolated pre-pandemic trend.

The authors argue this incomplete pass-through, not the inflation burst itself, is why American sentiment stayed sour long after price growth normalized — a grievance widely tied to the 2024 election. Belgium, which automatically indexes wages to inflation, serves as their counterfactual where the real-wage hit largely didn’t occur. They estimate that indexing firms’ standard raises one-for-one to inflation would have recovered about 40% of the shortfall, framing sticky nominal pay-setting as a concrete, fixable driver of the post-pandemic cost-of-living backlash.