- by New Deal democrat
We’re still in a new data drought. CPI gets released tomorrow, and then a slew of data on Thursday. In the meantime there is one more data point that helps explain why consumers are still powering the economy forward.
The Atlanta Fed maintains a “wage tracker” that measures wage growth, most importantly sliced between “job stayers” and “job leavers.” In general people switch jobs for better wages so unsurprisingly the latter make out better than the former, who take whatever their current employer gives them.
On of the important reasons why many people were so down on the economy last year is that outrunning 20% inflation by 1% is far less attractive than outrunning 3% inflation by 1%, which a recent Fed study reinforced. Further, job stayers typically didn’t outrun inflation at all! It was job switchers who came out ahead.
Well, the Atlanta Fed updated their data a couple of weeks ago. It showed that on a three month average basis, job switchers’ wages were growing at a 4.3% annual rate, which job stayers’ wages were actually growing slightly better, at a 4.4% annual rate. The below graph shows the historical basis by subtracting the current figures so that they show at the 0 line:
Although wage growth has slowed considerably from its torrid days of 2022 and 2023, on a historical basis job switchers are still seeing wage growth better than about 3/4’s of the time between the turn of the Millennium and the pandemic. Job stayers are making out better than at *any time* between 2001 and the pandemic. So while I read some commentary last week about how wages are growing at a much slower rate than recently, they are still growing at a historically high rate.
But how does that play out in “real” terms? In the below graph I add on the YoY% growth in CPI (red) for comparison:
In the decade between 2004 and 2014, wages grew barely more than inflation for either group. One reason the first T—-p term may be remembered fondly by some in economic terms is that wages substantially outperformed inflation from 2015 through 2019.
Now let me take the same data focused in on the post-pandemic era:
In 2021 and 2022, neither job stayers nor switchers were able to keep up with inflation. By the end of 2022, job switchers started pulling ahead, but job stayers did not do so until four months later. Since 2023, wages for both groups have consistently grown more than inflation by about 2%-3%.
This has been giving consumers a lot more leeway to spend on stuff, up to and including now.
Finally, here are a couple of median, rather than average, wage metrics adjusted for consumer inflation:
One important difference is that the Employment Cost Index is adjusted for the type of job performed, while usual weekly wages are not. Since many low-paid service workers were laid off during the COVID lockdowns, the latter metric was distorted by the job mix, whereas the former measure was not.
This is important, becuase even with improvement, adjusted for inflation, the median E.C.I. has still not made up all of the ground it lost after the outset of the pandemic.
