- by New Deal democrat
As widely reported in the past week, real weekly earnings declined a sharp -2.1% in Q3. For example, here is Menzie Chinn at Econbrowser:
And here, more histrionically, is Mike Koncxal on X:
Is this an important danger sign?
No. Why? To cut to the chase, because even after seasonal adjustment it is the noisiest wage earnings metric there is (light blue in the graph below), and specifically in comparison with average weekly earnings as measured in the monthly jobs report (dark blue), and even more importantly in comparison with the quarterly employment cost index (red). Here’s what they look like since before the onset of the pandemic:
You can easily see that the blue bars not infrequently have both upside and downside quarterly swings well in excess of average weekly earnings, and positively wild swings in comparison with the employment cost index. Note, for example, that real weekly earnings had an outsized increase in Q2 of this year that almost completely cancels out their Q3 decrease. Perhaps more importantly, while both usual weekly earnings and the employment cost index are median numbers rather than an average like the monthly weekly earnings figure, the employment cost index norms by type of employment. Thus, in the immediate wake of the pandemic, many more low wage earners were laid off compared with higher wage earners, causing the other indexes to increase sharply even as unemployment soared as well. Then, as the pandemic gradually subsided and the low wage earners were hired back, those series decelerated back to a more “normal” change. But the employment cost index, which accounted for the change in the mix of employment, remained fairly steady.
As a result, when we measure the changes YoY rather than quarter over quarter, the huge swings tend to even out:
The monthly metric of average weekly earnings for all workers, averaged quarterly, is higher YoY on a nominal basis almost by the same percentage as median usual weekly earnings, but with much less drama.
And the same holds true on a historical basis. Note that the above graph, as well as all those below, show *nominal* changes, to account for the fact that different deflators may be used in the normal reporting of the series.
Here is 1979-99:
And here is 2000-2019:
Again, the “usual median weekly earnings” series is much more volatile, as you can see from the wider swings in the blue bars compared with the others.
This is not to say that Q3 real wages for ordinary workers have been good. As I’ve reported for a number of months now, on a YoY basis, real earnings have been flat or slightly negative. But take the noisy Q3 report with multiple grains of salt. It is likely to revert to the mean compared with the other reports in Q4.