One can decompose the growth in real (inflation-adjusted) weekly earnings into the parts due to:
a) hourly wage growth
b) weekly hours worked
So, the growth in real weekly earnings = a + b – c, or nominal hourly wage growth plus hours growth minus the rate of inflation.
Now that we have inflation data for December, we can break apart real weekly earnings growth for 2015 into these components and compare it to recent years, in this case for blue-collar workers in manufacturing and non-managers in services. I’ve found this “production worker wage” to roughly track the pay of middle-wage workers. The black dot is the sum of the three building blocks.
Right off the bat, you see that after going nowhere for three years, real earnings gains rose in both 2014 and 2015, by 1.8% and 1.4%, respectively, for these middle-wage earners. Nothing to get exuberant about, but welcomed real gains for sure.
The other point is that it’s not so much faster hourly wage growth nor a lot more weekly hours driving the increases. It’s lower inflation. In response to the tightening job market, hourly wage growth picked up a bit last year, growing 2.4% in 2015 as opposed to the ~2% of the prior two years. But the big difference was the sharp decline in the CPI. Had prices risen at, say, 2%–a more normal pace–real weekly earnings would have been flat.
You can view that as a transfer of riches from Middle Eastern oil sheikhs to guys and gals on the production line, providing health care, teaching kids, and so on, which is fine by me. Or you can recognize that nominal wage growth is only now starting (maybe) to pick up its pace a bit, suggesting that (maybe) workers are gaining a little bargaining power as employers compete. And you can hope the Fed sees no reason to stop it.