No Wage Inflation in This Economy


Source: BLS, ECEC

By Jared Bernstein
June 12, 2o13

I know…you didn’t think there was…any wage inflation…in this economy.  But this is economics; you’ve got to prove it.  [For decades, when I go home and my wife says “what are you working on these days?” and I tell her, she says, “doesn’t everybody already know that?”  And I say, “Well, what do you mean by ‘know’…do you mean they think it but don’t have evidence??”  And she sadly shakes her head and gets back to other stuff…]

The figure shows a compensation series that doesn’t get a lot of press but is quite useful and comprehensive: what employers pay for employee compensation, including wages and benefits.  The lines plot out the yearly changes in nominal hourly benefits, wages, and their sum: total compensation.  Benefits tend to grow more quickly (think health costs) but they’re 30% of comp, so wages are a larger driver of the total.

You see total comp growing around 4% before the recession slammed the brakes on the rate of growth, and while there have been some wiggles, the most recent reading is around 1% (1.3%, 2012q1-2013q1)–and remember, this is average compensation, so it includes high-end earners with phat benefit packages.  That 1.3% is around the rate of inflation, so that means flat hourly comp in real terms, on average.

One question this raises is how the heck are we getting anything like the decent consumer spending numbers in recent GDP reports?  My answers are:

–these are hourly wages, so as we add jobs, we add aggregate hours worked, and that helps drive income and consumer spending;

–lately savings rates have come down so that’s another source of some spending;

–non-labor income such as capital gains and dividends are up, along with corporate profitability, and that stuff decidedly doesn’t show up in paychecks;

–increased housing wealth is probably contributing as well.

Jeez, that all sounds depressingly familiar—weak wage growth in the midst of growing inequality with consumer spending supported by housing wealth and drawing on savings.  What could go wrong?



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