The inflation-adjusted wage data released by the government this morning illustrates splendidly the truth that baselines can matter decisively in judging economic progress (or backsliding).
The overall September figure for the private sector nosed up 0.10 percent over August’s level. Is it encouraging that this increase (both August and September numbers are still preliminary) marks the first stretch of three straight monthly rises since January (which capped a four-month streak)? Or is it discouraging that the rate of increase slowed from August’s 0.48 percent? Or that real wages are up cumulatively only 0.10 percent since January?
Ditto for the year-on-year trends, which are probably more reliable since they cover longer stretches of time. The new private sector constant-dollar wage level is 2.23 percent higher than the year-ago number – certainly not great by historical standards, but at least well ahead of living costs as they’re measured by the government. And from September, 2013 to September, 2014, real wages rose only 0.39 percent – so the latest figures show major progress. But in January, the year-on-year improvement was 2.43 percent. That looks like a slowdown. Further, since the current recovery technically began, in mid-2009, inflation-adjusted wages for the private sector is up only 2.33 percent. That’s over a more than six-year period!
Continuing a recent trend, in some respects, the real wage picture in manufacturing looks better. Factory pay after inflation increased 0.19 percent in September over August levels. Moreover, its current three-month real wage winning streak is its first since June, 2013. And as a a result, these wages are now 0.56 percent higher than in January – a better performance than that of the overall private sector. At the same time, on a monthly basis, this constant dollar manufacturing pay increase represented a distinct cool-off from August’s 0.66 percent.
But where real manufacturing wages have been truly shining (at least relatively speaking) is in the year-on-year comparisons. September manufacturing wages have advanced by 2.29 percent. This is both a bit faster than the pace for the entire private sector, and – more important – the first yearly figure industry has seen north of two percent since October, 2009. By comparison, real manufacturing wages actually fell between September, 2013 and September, 2014.
That October, 2009 date, however, signals something important. Although the recovery was just getting underway, manufacturing was still shedding tens of thousands of jobs each month. Manufacturers with whom I was regularly in touch then offered a convincing explanation for this paradox: Most of the employees being let go were relatively junior, and therefore relatively low paid. And because the remaining workers were paid better, the sector’s overall wage numbers received a big statistical lift. Last month, manufacturing employment dropped for the third straight month – the first such stretch since the three months ending in October, 2010. Could similar employment decisions be behind this new, more modest, wage improvement?
I’ll need to check into this. For now, though, it’s worth noting that despite this progress, real manufacturing wages are still 0.19 percent below their level when the recovery technically began – back in June, 2009. That’s a sharp contrast even with the modest overall private sector real wage improvement during that period.