Links, High vs. Low Wages

February 5th, 2018 at 11:42 am

The stock market opened way down, continuing last Friday’s selloff, though it has climbed back since the open–implying the return of volatility–as skittish investors continue to fear the sequence I describe in this AM’s WaPo: tight labor market, wage pressures, higher interest rates, inflation, lower profit margins. Underneath these swings is an unsustainable, inequitable economic model with serious political implications.

BTW, in discussing last Friday’s 2.9% wage pop–which I tried to put in perspective here (Don’t Fear Wage Growth! Embrace It!)–many of us noted that the wage gains of the 80% of the workforce that’s blue-collar production workers or non-mangers in service jobs went up only 2.4% (call this the PNS wage, for production, non-supervisory). Well, given that we know the average private sector wage, the PNS wage, as well as PNS employment, we can back out the white-collar (WC) wage. (Caveat: I once asked BLS is they viewed this as kosher and they didn’t say ‘yes.’ Nor did they say ‘no’ or explain why not. At any rate, it’s gotta be ballpark, I think.)

Over the past year, here are the three rates of nominal wage growth:

All: 2.9%
PNS: 2.4%
WC: 3.9%

It’s a noisy series and I’d want to see other evidence before concluding there’s much here, but the figure below shows the ratio of the backed-out WC wage to the PNS wage. It’s been growing lately and spiked last month, implying rising wage inequality.

Source: BLS, my calculations.

Wage inequality was already on my watch list, of course, but this is worth keeping on eye on. See this WSJ piece for more sectoral detail.

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4 comments in reply to "Links, High vs. Low Wages"

  1. Smith says:

    What about inflation of 2%?
    All 2.9 – 2 = .9
    PNS 2.4 – 2 = .4
    WC 3.9 – 2 = 1.9
    Thus wages grew 4.75 times faster for white collar workers than production non-supervisory. If they were evenly split, the awful inequality which doubled since Ronald Reagan would be sustained. You have to get substantially more gains for PNS over WC to regain share that was taken from them mostly between 1980 and 2000. Yes Bill Clinton’s presidency saw widening inequality on a par with Reagan’s.

    Why are we not seeing these figures and seeing them in graphs? Why is this not the lead story? The real difference is .4 vs 1.9 not 2.9 vs 3.9. Where did I get the 2 percent inflation figure? From Jared Bernstein of course, see quote and link below.

    Another major complaint about misunderstanding economics. The stock market needed a correction, the price earnings ratios reflected a bubble and historical aberration, and those prices were unsustainable. Blaming rising wages for the correction strikes one as counter productive to promoting an enlightened and correct view of market forces.

    Let’s quote Jared’s WaPo piece he links to above:
    “Because inflation has been running about 2 percent, that implies about a 1 percent gain in real, paycheck buying power.”

  2. Jill SH says:

    And then there’s the dilemma of the tipped workers, who are in sub-minimum wage jobs, and about to have their tips confiscated. Er, shared.

  3. dk says:

    Hi Jared,

    Please help Smith and me out. Are we wrong? I did the same calc using 1.8% inflation and get approx 4 times faster wage growth for (roughly) the top 20%.

    It’s probably likely that most of it is going to top 1%. Is there any way to find out besides admin data from IRS years later?

    Also, what could be the problem with backing the figure out?

    Thanks for your help, and your blog.

  4. dk says:

    Sorry, continuing from the last comment, I think I see my error: you have to use (% of labor income of bottom 80% times 0.6 (their wage increase)) + (% of labor income of top 20% times Unknown) = (100% of labor income times 1% (total wage increase)), ie you can’t multiply by population percentages, it’s wages that are growing.

    But why is Smith (above) wrong? If you used 1.8% inflation to put it into real terms, wage increases were:
    BLS average for all – 1.1%
    BLS average for big 80% 0.6%
    JB calc for top 20% 2.1%
    which is 3 and a half times faster growth for the top 20%.

    The numbers now agree with Kevin Drum’s here: