Monday, January 7, 2019

Good news from the employment report: workers are finally getting raises!

 - by New Deal democrat

When it comes to jobs, if there is one trend that really set apart 2018 from any prior year of this expansion, it is that ordinary workers are finally getting decent raises.

Let's start by looking at the monthly % change in average hourly wages for non-managerial workers for the entire duration of this expansion. Since this has averaged about +0.2%/month, I've subtracted that so that any month above 0 is an above average increase in nominal hourly pay for ordinary workers:

Look at the far right. In ten of the last twelve months, average hourly wages have increased by more than the norm for this expansion.

As a result, YoY nominal wage growth in the last two months has been a little over 3.3%:

Average hourly wage growth accelerated YoY during almost all of 2018. The prrevious high mark of this expansion before late 2017 had been +2.7% YoY.

It certainly appears that employers have finally gotten the message, and the "taboo against raising wages" has been broken -- for now.

Note that from the long term view, Happy Days are not quite Here Again. Here's a graph of the YoY% increase in nominal (blue) and real (red) average wages for non-managerial workers over the last 35 years:

Note that nominal wage have continued to fall, or at least falter, for at least several years after the end of each of the recessions during this period. There have been several reasons for that, but the bottom line is that the "underemployment rate" has to fall to a certain level to put any kind of floor under wage growth. After that nominal wages growth tends to increase until the next recession starts.

But, even with the recent very low unemployment and underemployment rates, nominal wages have still not grown at the 4%+ rates of the last several expansions.

Real, inflation-adjusted wages (red) are of course a whole other story. Since the turn of the Millennium these mainly have had to do with fluctuations in the price of gas. The big "pop" in real wages in 2014-15 was when gas prices declined from close to $4/gallon to under $2/gallon. In the last few months there has been a similar dynamic.

In December, nominal non-managerial wages grew +0.4%.  Because of the government shutdown, CPI may not be reported timely. But we can estimate, since gas prices declined over -10% in December alone. In the past, this has been associated with a decline in overall CPI from -0.3% to -0.5%. This suggests that real, inflation-adjusted wages probably grew at close to +0.8% in December, bringing the YoY gain for all of 2018 to about 2%.

This is almost unalloyed good news.