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Working Papers, No. 2025-14, August 2025 Crossref
Composition-Adjusted Wage Growth: A Robust Measure from Microdata

Wage growth is a key indicator of labor market conditions, but common measures often conflate individual wage changes with shifts in workforce composition. This paper develops a composition-adjusted measure of wage growth using nonparametric decomposition and program evaluation methods. The adjusted measure tracks unadjusted growth in stable periods but diverges during disruptions: during the Covid-19 pandemic, wage growth falls from 12% to 6% after adjustment. The method accommodates rich covariates, is robust to data quality issues such as rounding, heaping and top-coding, and enables distributional and subgroup analysis using micro data, offering more accurate views of underlying wage dynamics.


Working papers are not edited, and all opinions and errors are the responsibility of the author(s). The views expressed do not necessarily reflect the views of the Federal Reserve Bank of Chicago or the Federal Reserve System.

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