So for the first time in decades, people seem to be talking about inflation all the time.
In fact, the official numbers in the United States say that inflation was up in August of 2022 by 8.3 percent. So with prices going up so much, it's very natural for people to ask the question, will my wages go up as much as prices are? Unfortunately, the short answer is that on average, no. The Bureau of Labor Statistics says that in August, year over year, that real average hourly earnings dropped by 2.8 percent. That doesn't mean that your wages went down, by the way, on average. It just means they didn't go up as fast as prices did. Why does this happen? Well, for the most part, economists point to two different reasons. One, prices change at different rates, and wages tend to be sticky. And what that means is that, you know, prices at the gas station get adjusted every evening. A grocery store or restaurant can adjust their prices any time, but most companies only adjust wages once or twice a year. And so there's always a lag effect between when inflation happens in prices and when wages get adjusted. But the second reason that wages tend to be sticky is that they also are what's called rigid, which means that companies don't like to adjust wages significantly, either up or down, too much at one time. And that creates another effect that keeps wages from rising on average as fast as prices do. Thanks for watching.
If you like this video, be sure to hit like or subscribe. Or better yet, if you have questions on how to save, invest or give, be sure to ask Adam by posting a question down below.
Please note that the information contained on this page is for educational purposes only and should not be considered tax advice. Any calculations are intended to be illustrative and do not reflect all of the potential complexities of individual tax returns. To assess your specific tax situation, please consult with a tax professional.