Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold among Negative-Yielding Bonds - 20th Sep 19
Panicky Fed Flooding Overnight Markets with Cash - 20th Sep 19
Uber Stock Price Will Crash on November 6 - 20th Sep 19
Semiconductor Stocks Sector Market & Economic Leader - 20th Sep 19
Learning Artificial Intelligence - What is a Neural Network? - 20th Sep 19
Precious Metals Setting Up Another Momentum Base/Bottom - 20th Sep 19
Small Marketing Budget? No Problem! - 20th Sep 19
The Many Forex Trading Opportunities the Fed Day Has Dealt Us - 19th Sep 19
Fed Cuts Interest Rates and Gold Drops. Again - 19th Sep 19
Silver Still Cheap Relative to Gold, Trend Forecast Update Video - 19th Sep 19
Baby Boomers Are the Worst Investors in the World - 19th Sep 19
Your $1,229 FREE Tticket to Elliott Market Analysis & Trading Set-ups - 19th Sep 19
Is The Stock Market Other Shoe About To Drop With Fed News? - 19th Sep 19
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Real Wage Growth Is Actually Falling

Economics / Wages Sep 27, 2018 - 05:44 PM GMT

By: Patrick_Watson

Economics The US economy is at “full employment,” says the official 3.9% unemployment rate.

The problem is that fully employed people haven’t seen enough wage growth. It’s a puzzle. Wages used to rise faster when unemployment was this low.

That’s why there was much celebration when the August jobs report showed a 2.8% annual increase in average hourly earnings for “Production and Nonsupervisory Employees,” i.e., regular workers.


The media reported it was the fastest wage growth since 2009.

That was correct in a narrow, technical sense. But not in real life.

Real Wages Are Flat

Aside from employment data, the Bureau of Labor Statistics also compiles the Consumer Price Index (CPI), our primary inflation gauge.

In the same period in which average hourly earnings rose 2.8%, the CPI rose 2.7%. That’s how much the cost of living went up, on average.

(Your personal inflation depends on how you spent your money. But unless you had no housing or transportation expenses in the last year, your cost of living probably rose at least 2.7%, and possibly much more.)

So, a 2.8% wage gain is essentially no gain at all. Inflation-adjusted wages are flat since last year. It is certainly not the fastest wage growth since 2009, or even close.

But that’s not what you read in the news. They showed you charts like this one, which doesn’t adjust for inflation.



Source: Bureau of Labor Statistics, St. Louis Federal Reserve Bank

In this chart, wage growth started a nice rally in mid-2017. And apparently, it is set to go higher still. But again, that doesn’t consider inflation.

Here is the very same data series for the same time period, but subtracting CPI-U inflation.



Source: Bureau of Labor Statistics, St. Louis Federal Reserve Bank

Quite a different picture.

We see that real wage growth peaked in 2015. Since then, it’s been trending down, except for a brief pop in 2017. And it’s been about zero in recent months.

Economists and journalists know about inflation. They often report Gross Domestic Product growth in real terms, for instance. But not wage growth. For that, they assume inflation doesn’t matter.

But it matters a lot. Workers whose earnings don’t keep up with inflation find themselves falling behind. Eventually, they notice the problem and look for someone to blame. Hence, our current social and political discord.

Memories of 1980

One more chart. This is average hourly earnings minus CPI-U—same as the sad-face chart above—but this time going back to 1965.



Source: Bureau of Labor Statistics, St. Louis Federal Reserve Bank

When the blue line is below zero—as it was for long periods—real wages were actually dropping instead of growing. 

On the positive side, there were a couple of times when real annual wage growth approached 5%. But only a couple, and they didn’t last long.

Notice that big spike down in 1980, by the way. That was the recession year when angry voters ushered out Jimmy Carter.

Thankfully, we are nowhere near that point now. But neither are we in the best of times.

Real wages are flat and trending the wrong way. Yet politicians from the president on down—and experts who should know better—tells workers to celebrate their good fortune.

What’s really happened is a redefinition of “good fortune.” Simply having a steady paycheck now means you should count yourself lucky.

Labor Isn’t Scarce

Economic theory says labor scarcity should force employers to raise wages. That’s indeed happening in certain segments. But it misses a crucial point.

Labor isn’t scarce in the growing number of occupations that can be automated. Supply is abundant if you include the machines.

I think this helps explain the wage puzzle. Low-wage workers don’t ask for more because they are (correctly) afraid of being replaced. And employers have little incentive to raise wages for those workers.

This probably won’t end well. As automation technology improves, millions of people will get steadily poorer and unhappier, and millions more will join them.

(I say “them” instead of “us” in hopes I won’t be in there too. But none of us should assume we’re safe.)

If we’re lucky, the mass un- and underemployed will peacefully line up to force changes like they did in 1980.

Get one of the world’s most widely read investment newsletters… free

Sharp macroeconomic analysis, big market calls, and shrewd predictions are all in a week’s work for visionary thinker and acclaimed financial expert John Mauldin. Since 2001, investors have turned to his Thoughts from the Frontline to be informed about what’s really going on in the economy. Join hundreds of thousands of readers, and get it free in your inbox every week.

By Patrick Watson

Copyright 2018 © Patrick Watson - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules