Thursday, March 20, 2014

Real Wages Rise Slightly but Remain below Peak for 41st Straight Year

Remember the Economic Report of the President? If you've been reading this blog for at least a year, of course you do. It's where we get our annual data on real wages (and apparently some other stuff, too). The 2014 edition was released on March 10. As you may recall, I made my first post on the declining real wage trend through 2011 and was literally the first person to notice 2012's further slight decline.

The good news is that, in what is now Table B-15 rather than B-47, real wages advanced somewhat in 2013, from $294.31 per week (in 1982-84 dollars) to $295.51, an increase of 0.4%. Woo hoo!

The bad news, of course, is that this is still 13.5% off the peak real weekly wage of $341.73, achieved in 1972. One swallow doesn't make a spring, and all that.

Interestingly, last week Paul Krugman felt compelled to argue that real wages aren't going up all that fast, but so what if they did? He said that basically, this was something primarily only visible in the real hourly (my emphasis) wages of production and non-supervisory workers, which happens to be one of the components of Table B-15. However, he was reporting based on the Bureau of Labor Statistics' monthly reporting of this stat.

As he puts it, the folks he is criticizing are saying that "a dangerous acceleration in the pace of wage increases is already underway. Time to raise interest rates!" His response to them is fine as far as it goes, but he misses that even on the terrain of the supposedly most rapidly increasing measure, there is no there there.

Table A-2. Current and real (constant 1982-1984 dollars) earnings for production and nonsupervisory employees on private nonfarm payrolls, seasonally adjusted(1)

Feb.
2013
Dec.
2013
Jan.
2014(p)
Feb.
2014(p)
Real average hourly earnings(2)
$8.73 $8.81 $8.83 $8.86
Real average weekly earnings(2)
$294.96 $295.22 $295.69 $295.08
Consumer Price Index for Urban Wage Earners and Clerical Workers
229.180 230.919 231.233 231.344
Average hourly earnings
$20.00 $20.35 $20.41 $20.50
Average weekly hours
33.8 33.5 33.5 33.3
Average weekly earnings
$676.00 $681.73 $683.74 $682.65
OVER-THE-MONTH PERCENT CHANGE
Real average hourly earnings(2)
-0.3 -0.1 0.2 0.3
Real average weekly earnings(2)
0.2 -0.6 0.2 -0.2
Consumer Price Index for Urban Wage Earners and Clerical Workers
0.6 0.3 0.1 0.0
Average hourly earnings
0.3 0.2 0.3 0.4
Average weekly hours
0.6 -0.6 0.0 -0.6
Average weekly earnings
0.8 -0.3 0.3 -0.2
OVER-THE-YEAR PERCENT CHANGE
Real average hourly earnings(2)
0.1 0.8 0.8 1.5
Real average weekly earnings(2)
0.4 0.2 0.4 0.0
Consumer Price Index for Urban Wage Earners and Clerical Workers
1.9 1.5 1.6 0.9
Average hourly earnings
2.0 2.3 2.3 2.5
Average weekly hours
0.3 -0.6 -0.3 -1.5
Average weekly earnings
2.3 1.7 2.0 1.0
Source: Bureau of Labor Statistics (link above), footnotes omitted

First of all, we should remember that a couple months' trend is not really equal to a 41-year trend. That kind of error we'll leave to Reinhart and Rogoff.

Second, we can see the "scary" number: nominal hourly earnings increased from $20.00 in February 2013 to $20.50 in February 2014, or 2.5%.

Third, we know that we actually want to adjust that for inflation; hence we find that real hourly earnings went from $8.73 in February 2013 (1982-84 dollars) to $8.86 in February 2014, or just 1.5%,

Fourth, what Krugman appears to miss is that average weekly hours have fallen substantially since 1972. In fact, as the BLS table shows, they fell by half an hour, from 33.8 to 33.3 hours, from February 2013 to February 2014, or 1.5%.

You can see where this is going now: Real weekly earnings went up by 0. More precisely, 0.04%. And you'll note that the February 2014 figure is lower than the full-year 2013 level. So there is actually no increase to explain in the production/non-supervisory workers series.

But Krugman does hit the nail on the head: "What's so bad about rising wages?" And the answer, of course, is "Absolutely nothing." ("Say it again!")

Cross-posted at Angry Bear.

4 comments:

  1. When you analize real wages, does this include an offsetting factor for improvements in technology and production? If not then I fail to fee how it is a valid analysis. Case in point: big screen TV's. They have come down in price so much that almost anyone can afford a HD wide screen TV. One could consider newfound ability to afford a big screen TV as a pay increase!! And this example is mirrored in thousands of others ways involving things Americans buy. The fact is probably that even in a stagnant economy from the standpoint of wage increases, upward increases in technology and productivity leads to increases in the overall standard of living and thus our overall compensation. Where is the analysis that takes this into account? And just consider healthcare: improvements in heart disease treatments and cancer treatrments have lead to years and years of improvements in the average length of life. Think about Obamacare - this is probably a $10,000 to $15,000 pay increase to your average poor person. Wage numbers don't tell the whole story, and I contend that any analysis on the welfare of the middle class is irrelevant if it does not include a wholistic and comprehensive view.

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    Replies
    1. Yes, these factors are taken into account by the Bureau of Labor Statistics in calculating inflation. A lot of communications devices are cheaper, obviously, but education and health care have gotten vastly more expensive.

      I analyzed these issues in the context of poverty here: http://www.middleclasspoliticaleconomist.com/2011/07/heritage-tries-to-mislead-us-on-how.html

      And don't forget that life expectancy at age 65 is much greater for higher income people than lower income people, a gap that has been steadily expanding.

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    2. Poor people didn't get life expectancy increases. Enjoy your flatscreen living in your car. Try again.

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  2. "One could consider newfound(sic) ability to afford a big screen TV as a pay increase!!"...this is just nonsense for several reasons:

    1. Not everyone wants a "big screen TV". Everyone wants a pay increase.
    2. Not supported by the data: "that almost anyone can afford a HD wide screen TV".
    3. "Obamacare - this is probably a $10,000 to $15,000 pay increase to your average poor person." . Very misleading. A subsidy to purchase a legally mandated product can hardly be construed as a "pay increase". The majority of the ACA subsidies goes to people making between $47,100 and $94,200. http://familiesusa.org/product/infographic-premium-tax-credits-numbers

    Wage numbers may not tell the whole story but the best indicator of labor market strength and weakness. A holistic view? Um, that's macro. In order to have any sane macro model one must understand the constituent parts before becoming a "wholistic" (sic) genius.

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