Thursday, October 15, 2015

Real aggregate wage growth declines slightly in September, but trend continues positive

 - by New Deal democrat

In my opinion, the single best measure of a labor market expansion is real aggregate wage growth. People don't work just for the hours, or the jobs, but for the cold hard cash they can bring home and save and spend.  How much a growing economy allows them to do that is the best measure of the well-being it is delivering.

I call this the "lump of labor" approach, because sometimes, as in the 1980s and the first part of the 1990s, average wages are declining, but hours are expanding.  Sometimes, nominal wages are growing, but inflation-adjusted wages falter, as in the 1970s. In the present expansion, by contrast, nominal wages and real wages have grown slowly, and hours worked have grown strongly. The current expansion, as opposed to the expansions of the 1950s and 1970s, also gets bonus points for being long-lived.

Now that we know the September inflation rate, I can update this information.  Last month, nominal average wages for nonsupervisory workers grew very slowly.  Prices, however, fell by -.2%, meaning that real wages actually improved.  But aggregate hours work declined, meaning that aggregate real wages declined by -0.1%. Here is the long-term graph going back 50 years:

Real aggregate wages are now 16.8% above their recession trough of October 2009.  It is easy to see that this expansion does not measure up to the 1960s and 1990s, but far outpaced the George W. Bush expansion of 2002-07.

Here's how the current expansion stacks up in comparison to the Reagan expansion of the 1980s:

At this point, 5 years and 11 months after the bottom, the Reagan expansion was slightly better at 18.9%.  Note that about half of that increase came during 1983, whereas in the current expansion real aggregate wage growth started out slowly (as gas prices rose from $1.40/gallon to $3.95/gallon) and then picked up steam last year (as gas prices fell to less than $2/gallon).

As an aside, *if* real aggregate wage growth were to continue for 12 more months at its average pace for the last 6 years, past history going back 50 years strongly implies the democratic nominee will win the presidential election next year.