When unemployment is as high as its been (and likely to stay up there for a while), nominal wages tend to grow more slowly. Back in early 2009, the annual growth rate of hourly wages was about 3.5%; now it’s down to around 2%.
At the same time, inflation has picked up—we learned today that consumer prices grew 3.6% over the past 12 months (energy prices spiked and food prices grew more quickly as well—take those out and the price index grew less than 2%).
Combine slower nominal wage growth with faster inflation and you get the picture below. It plots both the real (inflation-adjusted) growth in hourly and weekly wages over the past few years. Inflation was running close to 1% around a year ago, and that led to growing real wages. But the collision of faster price growth and slower wage growth since then has meant a decline in the buying power of the average workers’ paycheck.
Weekly earnings have fallen less as increased hours per week have helped to offset some of the slowdown in real hourly wages. But not enough to avoid real losses.
I know…I know…some of us have argued for faster inflation to help further reduce real interest rates as well as the real debt burdens of deleveraging households. But I mentioned this very problem—real wage decline—in that context. And the idea there is to hasten faster growth and put this damn “growth recession” behind us, get people back to work, and get nominal wages rising more quickly.