A Quick Check-in on the Wage Front

July 25th, 2014 at 5:22 pm

We don’t yet have all the data I need to update my full-monty-wage-mash-up, but a few series to which I pay attention are now available for the first half of the year: median weekly earnings (MWE) of full-time workers and two flavors of average hourly earnings.  What do they show?

Not much, in terms of wage pressures.  MWE is a very noisy series–medians are a more volatile statistic then means–so in order to show underlying pace in nominal weekly earnings, I’ve smoothed the series (using an HP filter; both figures show year-over-year changes).  Amidst the jumpiness, the deceleration is clear.

MEDIAN WEEKLY EARNINGS, FULL-TIME WORKERS, NOMINAL YR/YR CHANGE

mwe_sm

Source: BLS, my analysis.

Average hourly wages of all workers has been flat-lining at 2% since 2011, which, btw, is also about the rate of inflation since then (2.2%), implying stagnant hourly earnings.  So if paychecks are growing in terms of their buying power, it’s due to more hours of work as opposed to higher real hourly earnings.  The other series is for “production, non-supervisory” workers: those in blue collar and non-managerial occupations.  That one has accelerated a bit, from around 1.5% at the end of 2012 to around 2.5% now.

ahe_14q2

Source: BLS

This acceleration, in my not-at-all humble opinion, is a very good thing, something to be nurtured, not stomped out.  Not only is inflation still relatively low and “well-anchored,” but there are important pressure valves by which real wage gains could and should be absorbed.  Labor’s share of national income remains unusually low, so a distribution within “factor incomes”–i.e., from capital to labor–would be welcomed.  Relatedly, higher relative earnings by median and lower-wage workers could also be “paid for” out of diminished inequality.

So sure, let’s watch all the gauges, most notably in this space, unit labor costs–the growth of compensation relative to productivity–as that feeds strongly into prices.  But, while it feels odd to have to assert this, real wage gains are a good, welcome, and long sought-after development.  Not a problem.

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3 comments in reply to "A Quick Check-in on the Wage Front"

  1. Rima S. Regas says:

    Great post.

    One observation from someone who does all the shopping for the family. Food prices have risen quite a bit since the start of the recession and definitely since right before Christmas. For example, the price of milk, per gallon, is up about $.75 in my neck of the woods. The price of meat has also risen by a few dollars a pound.

    Grocery stores have changed a lot since the end of ’07. Some of those changes, understandably, were due to a needed tightening up in how stock is managed. Other changes were due to manufacturers reducing the number of varieties and product lines for the sake of efficiency. Packaging almost immediately changed, with less net product. The drop in demand across all categories is a huge factor. But six years into this Great Recession, I am still seeing these kinds of big changes inside the stores that seem to be a continued response to a price-driven lack in demand.

    While I understand why prices have risen and that it isn’t due to inflation, most people don’t understand why not. Maybe you can address this in a future post.

    Thanks


  2. Some guy says:

    Good post.

    I wonder how many of the long term unemployed and ‘missing workers’ will rejoin the workforce in the next few months..or will more and more people fall off the radar.

    Not every current job opening is for a rocket scientist (lots of open jobs are simple administrative positions where employers are holding out for the moon and the star and the sun (multiple positions fused into one, multiple programming languages, jujitsu/ninja skills, etc.) for minimum wage.

    Surely, once employers come back to Earth and hire reasonably skilled people (if demand/growth ever picks up again), the long term unemployed and ‘missing workers’ can be hired for less than currently employed workers, and this will continue to act as a damper on wage inflation.

    Hopefully the long term unemployed and ‘missing workers’ won’t have to be cast off into space as space junk if they are to be no use to the economy ever again.


  3. urban legend says:

    But if real wage gains begin, will the Fed let the process continue or will they choke it off for fear of inflation? What good will it do for demand if it isn’t allowed to last and let labor press for a higher share of business income?


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