The Conversation - February 7, 2020
If you thought workers’ hourly pay was finally rising, think again.
At first glance, the latest data – which came out on Feb. 7 – look pretty good. They show nominal hourly earnings rose 3.1% in January from a year earlier.
But the operative word here is nominal, which means not adjusted for changes in the cost of living. Once you factor in inflation, the picture changes drastically. And far from representing a “blue collar boom” – as the president put it in his State of the Union address – the real, inflation-adjusted data show most U.S. workers have not benefited from the growing economy.
As an economist who studies wage data, I think it’s paramount that we take a step back and look at what the data really show.
The effect of inflation and fringes
The Bureau of Labor Statistics comes out with two sets of data on wages.
Business journalists and financial markets tend to focus on the monthly data. These figures are only reported in nominal or current terms because the inflation data doesn’t come out until later.
A more complete set of wage and pay data is reported quarterly. The latest release came out in December for the third quarter. These figures are not only adjusted for inflation but also include fringe benefits, which account for just under a third of total compensation.
At first blush, it makes sense to focus primarily on the first set. Newer data is, well, newer, and market participants and companies prefer the latest information when making decisions about investments, hiring and so on.
But the effect of inflation means that the same US$1 bill buys less stuff over time as prices increase.
From December 2016 to September 2019, nominal wages rose 6.79% from $22.83 to $24.38. But after factoring in inflation, average wages barely budged, climbing just 0.42% in the period. ...
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