Wage Growth - 2 components and relevant hedge

There are two components to Wage growth,

If the benefits are indexed to inflation.

The inflation component of wage growth can be met with the combination of

  1. Nominal + Real Rate Bonds

What about the real growth component?

Would you use (real rate bonds + Equities ) or (Equities or Nominal bonds) ?

Why can’t we use 3 asset classes. There is no specific answer I guess, however is there was question to chose only 2 I’d go with equities + real.

as I understand it, real wage growth consists of a portion equal to the rate of inflation and any additional real growth above the rate of inflation. The future wages that will be indexed to inflation will be hedged with real rate bonds. If there is a portion that is not inflation indexed, you may need some nominal bonds as well

the portion arising from real growth (i.e. increases in labor productivity, etc.) will be hedged with equities.