Jobs Report: Real Wage Alert

November 4th, 2011 at 3:31 pm

Today’s jobs report gives us a look at the wage side of the job market.  It’s not pretty, and it’s an obvious reason why families are facing tight budgets and the economy’s stuck in neutral.

As the figure shows, real (inflation-adjusted) weekly earnings are down about 2% over the past year.  There are three ingredients to this result: hourly wages, weekly hours, and inflation.

Source: BLS, my estimate of inflation for Oct11 (see note at end of post)

On a year/year basis, nominal hourly wages have been growing, but their pace has significantly slowed as high unemployment has persisted.  There’s just no pressure coming from the demand side of the labor market that would lead employers to bid wages up (this should also be an important indicator against inflation hawkery over at the Fed).

Source: BLS

Weekly hours started coming back a bit when the job market first started picking up back in early 2010, but they’ve flattened over the last year.

Meanwhile, inflation has picked up a lot (again, for any hawks out there, we’re not talking core inflation, which is what the Fed targets—the acceleration has largely come from energy and food prices).*

The table breaks down the contributions to the 2.1% slide in weekly pay.  Basically, the average worker is being hit by the combination of weak hourly wage growth, no growth in hours, and relatively high inflation.

Source: See source note for Fig 1 above; percent changes are natural logs, so they are additive

Perhaps I lack vision, but I do not understand how shutting the EPA and lowering corporate taxes will help this beleaguered paycheck.  I do see how infrastructure jobs could help, and in fact, a majority in the Senate agrees with me on that point.  But these days, the majority doesn’t rule.

*Note: Inflation for October will not be out until later this month.  I estimated it using an AR(2) model of monthly (log) differences.

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