Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18
Rising US Home Prices and Falling Sales - 8th Dec 18
Choosing Who the Autonomous Car Should Kill - 8th Dec 18
Stocks Selloff Boosting Gold - 8th Dec 18
Will Weak US Dollar Save Gold? - 7th Dec 18
This Is the End of Trump’s Economic Sugar High - 7th Dec 18
US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - 7th Dec 18
The Secret Weapon for Getting America 5G Ready - 7th Dec 18
These Oil Stocks Are a Ticking Time Bomb - 7th Dec 18
How Theresa May Put Britain on the Path Towards BrExit Civil War - 7th Dec 18
How easy is it to find a job in the UK iGaming industry? - 6th Dec 18
Curry's vs Jessops - Buying an Olympus TG-5 Tough Camera - 5th Dec 18
Yield Curve Harbinger of Stock Market Doom - 5th Dec 18
Stock Market Crashed While the Yield Curve Inverted - 5th Dec 18
Global Economic Outlook after Trump-Xi Trade War Timeout - 5th Dec 18
Stock Market Dow Plunge Following Fake US - China Trade War Truce - 5th Dec 18
Subverting BREXIT - British People vs Parliament Risks Revolution - 5th Dec 18
Profit from the Global Cannabis Boom by Investing in the Beverage Industry - 4th Dec 18
MP's Vote UK Government Behaving like a Dictatorship, in Contempt of Parliament - 4th Dec 18
Isn't It Amazing How The Fed Controls The Stock Market? - 4th Dec 18
Best Christmas LED String and Projector Lights for 2018 - Review - 4th Dec 18
The "Special 38" Markets You Should Trade ebook - 4th Dec 18
Subverting BrExit - AG Confirms May Backstop Deal Means UK Can NEVER LEAVE the EU! - 3rd Dec 18
The Bottled Water Bamboozle - 3rd Dec 18
Crude Oil After November’s Declines - 3rd Dec 18
Global Economic Perceptions Are Shifting - Asia China Markets Risks - 3rd Dec 18
Weekly Charts and Update on Equity Markets, FX Trades and Commodities - 3rd Dec 18
TICK TOCK, Counting Down to the Next Recession - 3rd Dec 18
Stock Market Key (Short-term) Support Holds - 3rd Dec 18
Stocks Bull Market Tops Are a Process - 3rd Dec 18
More Late-cycle Signs for the Stock Market and What’s Next - 3rd Dec 18
A Post-Powell View of USD, S&P 500 and Gold - 2nd Dec 18
Elliott Wave: SPX Decision Time Is Coming Soon - 2nd Dec 18
Junior Gold Stocks Q3’18 Fundamentals - 1st Dec 18
Little-Known BDC Stocks Thrive Amid Rising Rates and Earn Investors +7% Yields - 1st Dec 18
Ray Dalio: This Debt Cycle Will End Soon - 1st Dec 18
Bank of England Warns UK House Prices 30% BrExit Crash! - 1st Dec 18
Gold Fundamentals Improving but Not Bullish Yet - 30th Nov 18
What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - 30th Nov 18
Global Economic Perceptions Are Shifting Imnplications for Stock Market - 30th Nov 18
The US Economy is Getting Worse. What this Means for Stocks - 30th Nov 18
Trailblazers Leading the Way in Online Reputation Management - 30th Nov 18
The Shift in Trend from Physical Printers to Online Printers - 30th Nov 18
UK House Prices 2019 No Deal BrExit 30% Crash Warning! - 30th Nov 18
Stocks Rallied, New Uptrend? - 29th Nov 18
The Fed Will Probably Stop Hiking Rates in 2019. What’s Next for Stocks - 29th Nov 18
Love. Fear. Inflation. A Precious Metals' Trifecta - 29th Nov 18
GBP/USD – Double Bottom or Further Declines? - 29th Nov 18
Stock Market Santa Rally Still a GO to Dow 27,000? - 29th Nov 18
UK Government and Bank of England BrExit Economic Armageddon Propaganda - 29th Nov 18
Why the Crude Oil Price Collapsed to $50 - 28th Nov 18
Gold Joins the Decline – the Earth is Shaking - 28th Nov 18
Watch This Picture As Asset Prices Fall - 28th Nov 18
GE’s Stock Price Crash Holds an Important Lesson About Investing - 28th Nov 18
5 Rules for Successful Trading - 28th Nov 18
Dollar Trend Imposes: EURUSD to Fall to 1.11 - 28th Nov 18
Gold, Original Money, Fiat Money - 28th Nov 18
When Will the Stocks Bull Market End? - 28th Nov 18
Looking ahead: Why the Smart Money is Investing in Green Energy - 28th Nov 18
The Yield Curve Will Invert Soon. What’s Next for the Stock Market - 27th Nov 18
Silver Trading and the Hands of a Broken Clock - 27th Nov 18
What's Inside SMIGGLE Christmas Advent Calender 2018 - 27th Nov 18
Investing in Recession Proof Trailer Parks - 27th Nov 18
The Advantages and Disadvantages of Debt Consolidation - 27th Nov 18
GDX, This Most-Hated Stock Could Return You 140% in Just a Few Months - 27th Nov 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

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.


© 2005-2018 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