Thursday, August 9, 2018

Four measures of wages all show renewed stagnation

 - by New Deal democrat

This is something I haven't looked at in awhile. Since 2013, I have documented the stagnation vs. growth in average and median wages, for example here and here. I last did this in 2017. So let's take an updated look.

We have a variety of economic data series to track both average and median wages:
Let's start with nominal wages.  The first graph below shows the YoY% growth in each of the four measures:

While each is noisy, the overall trends are clear:
  • First, in this cycle as in the last, wage growth declined coming out of recessions, then rose as the expansion continued.  
  • Second, by most measures nominal growth has picked up somewhat in the last year. 
  • Third, secularly there has been an undeniable slowdown in wage growth, which (while not shown) was 4-6% in the late 1990s peak and 3-4% at the 2000s peak. So far in this expansion it is no better than 2.5%-3%.  I believe this is in part due to how weak the employment situation was for so long into this expansion, but also secularly due to shifts in bargaining power, as employers learn over time that employees can be retained with lower and lower annual increases in compensation.

Now let's turn to the real, inflation-adjusted measures. Our first graph starts out normed to 100 for each measure in the fourth quarter of 2007.  

After a spike during the Great Recession due entirely to the collapse of gas prices at that time, real wage growth declined through 2013 time frame, then rose significantly from late 2014 through early 2016 mainly due to the decline in gas prices. Since that time, 3 of the 4 measures (all except the ECI) have turned flat if not worse.  Further, note the divergence between the mean measure of the average hourly earnings (blue) and median measures in usual weekly earnings (red) and the employment cost index (green), strongly suggesting that gains have been skewed towards the upper end of the income distribution.

Finally, let's look at the YoY% real growth in the four measures:

Here the picture continues to be not good at all.  After growing 2-3% in real terms during 2014-15, in 2016 real wage growth decelerated to only 0.5%-1.5% across the spectrum of measures, and as of the most recent readings is between -0.5% to +0.5% . 

In my last look at this data over a year ago, I concluded that the prospects for further meaningful wage growth for the broad mass of American workers during this cycle was dim. Nothing that has happened since that time has changed this poor result. What little nominal acceleration in gains there has been in any of the four series has been entirely negated by inflation. What gains in income have been made at the household level appear to be due exclusively to declines in the unemployment and underemployment rates.