by Calculated Risk on 12/26/2025 02:27:00 PM
Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2026. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I posted thoughts on those in the newsletter (others like GDP and employment will be on this blog).
I’m adding some thoughts and predictions for each question.
Here is a review of the Ten Economic Questions for 2025.
7) Wage Growth: Wage growth was decent in 2025, up 3.5% year-over-year as of November. How much will wages increase in 2026?
The most followed wage indicator is the “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka “Establishment”) monthly employment report.
Click on graph for larger image.
The graph shows the nominal year-over-year change in “Average Hourly Earnings” for all private employees. There was a huge increase at the beginning of the pandemic as lower paid employees were let go, and then the pandemic related spike reversed a year later.
Real wage growth has trended down after peaking at 5.9% YoY in March 2022 and was at 3.5% YoY in November 2025. Although wage growth was close to expectations in November and is trending down.
There are two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation. All three data series are different, and most of the focus recently has been the CES series (used in the graph above).
The second graph is from the Atlanta Fed Wage Tracker. This measure is the year-over-year change in nominal wages for individuals.
By following wage changes for individuals, this removes the demographic composition effects (older workers who are retiring tend to be higher paid, and younger workers just entering the workforce tend to be lower paid).
The Atlanta Fed Wage tracker showed nominal wage growth increased sharply in 2021 and for most of 2022. In September 2025, the smoothed 3-month average wage growth was at 4.1% year-over-year, down from a peak of 6.7% in July 2022.
NOTE: Due to the government shutdown, the wage tracker has only been updated through September. It will likely move lower in October and November based on the CES above.
Clearly wage growth has been slowing. Immigration policy (deportations) might boost wages for some jobs that have been held by undocumented immigrants, but overall I expect to see some further decreases in both the Average hourly earnings from the CES, and in the Atlanta Fed Wage Tracker. My sense is nominal wages will increase close to low-to-mid 3% range YoY in 2026 according to the CES. Although it is possible that wage growth will increase with a falling participation rate and slower population growth.
