[BOK Issue Note 2022-44] Recent Wage Trends and the Pass-Through of Wages

BOK Issue Note
Nominal wages Wage Phillips curve Producer prices Labor market Inflation expectations
Research Department(02-759-4154)

Nominal wages have shown a steep upward trend since 2021, exceeding pre-pandemic levels. In this paper, we evaluate the upward trend in wages through the lens of the wage hillips curve and estimate the effects of rising wages on producer prices.

The findings are as follows. First, the rise in nominal wages has been mainly driven by the uptick in regular payments made to permanent employees. Since the second quarter of 2022, the growth rate of regular payments to permanent employees has hovered sharply above the long-term average. 

Second, the rise in regular payments to permanent employees is largely attributed to the tight labor market and to high inflation expectations. When decomposing the growth rate of regular payments to permanent employees using the wage Phillips curve, compared to the fourth quarter of 2019, it has increased 0.30 percentage points and 0.45 percentage points thanks to the rises in the job openings rate and to the expected inflation rate, respectively. 

Third, a wage increase, coinciding with rising input prices, appears to have lead to a higher impact on prices. When wages rise 10 percent in the goods sector, producer prices rise 2.0 percent in the post-COVID period, compared to only 0.1 percent increases in earlier periods. This shows that a joint rise in wages and input costs can have an amplified effect on prices.

내가 본 콘텐츠