In an earlier look at today’s jobs report, I pointed out that wages are growing a bit faster than inflation, and then made the following assertion:
These real gains are more a function of weak demand, and thus low inflation, than they are indicative of a strengthening job market.
Let me substantiate that with a touch of number crunching.
The table below shows percent changes in the real weekly earnings of blue-collar, non-managers (i.e., mid-wage workers) in column 1. The other columns break the growth down into nominal hourly wages, weekly hours, and inflation. I’ve set this up so col(1)=col(2)+col(3)-col(4), or the growth in nominal wages plus weekly hours minus inflation equals the growth in real weekly earnings.
As you see, real weekly earnings for these workers flipped from slightly negative— -0.6%, year over year—a few years ago to slightly positive this year (in dollars, they were about $680 last month). The swing, or acceleration, shown in the last row, amounts to 1.2%–not great but a move in the right direction.
However, the other changes show that by far, the largest factor driving the acceleration in real earnings was the fall in the rate of inflation from 3.1% to 1.4%, a sharp deceleration. Weekly hours of work actually went the wrong way, reducing the growth of weekly earnings. Nominal wage growth accelerated a touch, by half-a-percent, but had it not been for falling inflation, real weekly earnings would have fallen faster last year than a few years ago, as hours losses were greater than nominal hourly wage gains.
So, while we’re all happy to see even a little bit of real earnings gains, they certainly don’t have much to do with faster demand, which would typically juice hours and prices a bit more. Workers need to pin their hopes on more than dis-inflation to see their paychecks grow faster.
Data Note: All data are three month averages over Nov, Dec, and Jan (e.g., the 2014 average hourly wage was averaged over Nov and Dec of 2013 and Jan of 2014) on production, non-supervisory workers. I estimated the CPI in Jan 2014 based on the average yearly change over the past six months. Percent changes are in natural logs to facilitate the decomposition.