I took the early afternoon off yesterday to see “The Force Awakens”with the offspring, so I didn’t get a chance to post on yesterday’s inflation-adjusted wages figures from the Labor Department. But they’re definitely worth noting, since they represent another set of full-year 2015 data (yes, they’ll be revised, too), and since they underscore how wage inflation seems to exist only in the eye of beholder economists. In the process, though, they underscore how crucial choosing baselines is to identifying economic trends.
The monthly real wage increase of 0.09 percent in December for the private sector matched November’s figure (which was unchanged), and it brought the year-on-year rise to 1.82 percent. And here’s where the baseline issue comes in. Inflation-istas will surely observe that this preliminary number handily beat that for the previous December (1.17 percent), and was by far the best annual real wage December-to-December increase on record (though the data series only goes back to 2006). Here’s how the data look in chart form:
Yet skeptics, like me, can point out that the monthly year-on-year increases dropped off significantly in the latter part of 2015 – not coincidentally, as the economy weakened. From January, 2014 to January, 2015, for example, inflation-adjusted wages advanced much faster – by 2.43 percent. By June, the rate was back down to 1.75 percent. It recovered to 2.42 percent by October, but then retreated to 1.83 percent in November. The graph below shows this loss of momentum:
Moreover, during the six-and-one half years since the current economic recovery began, inflation-adjusted wages are up only 2.81 percent total. And here’s oone troubling conclusion – maybe whatever wage “inflation” the economy has generated recently has come and gone?
The wage inflation story in manufacturing looks a little more convincing, especially over the medium term. But there could be a big qualification, which I’ll get to in a minute. After-inflation pay in the sector rose 0.09 percent on month in December, too. And November’s sequential increase of 0.19 percent was revised up from zero. But the 0.09 percent monthly increase previously reported for October was downgraded to a 0.09 percent drop.
Manufacturing’s December-to-December, and thus full-year 2015, constant-dollar wage increase came to 1.80 percent – a slower improvement than for the private sector as a whole. But that still amounted to the sector’s best December-to-December real wage increases by far since 2008, as this chart shows:
Moreover, throughout last year, manufacturing’s annual wage momentum strengthened. In January, it stood at only 1.53 percent. That rate of growth fell to 0.96 percent in June, and then bounced back pretty consistently for the rest of the year, as illustrated by this chart.
But one big reason may not be so encouraging. With manufacturing now in another jobs recession, it could be that companies are repeating a practice that became common after the financial crisis: Laying off many of their least experienced employees in an effort to hang onto their veteran talent in historically awful business conditions. As a result, while employment levels cratered in 2008 and 2009, real wages actually increased strongly, since longer tenured – and usually better-paid – workers became bigger shares of the total workforce. It’s too early to say if the latest wage uptick isn’t the same kind of statistical fluke, but no one can rule this prospect out, either.
Further, during the recovery, after-inflation manufacturing wages literally haven’t grown at all. Among the other implications – pay levels in industry began falling once again as hiring of junior workers resumed as the crisis eased. Then, of course, the entire economy was in recovery mode. Now it seems to have stagnated at best, and could be slipping into recession. In other words, don’t expect a real revival of real manufacturing wages any time soon.