Amid the excitement of last week’s Iowa Caucus homestretch, it was easy to overlook the Labor Department’s release of new data on overall U.S. pay levels. Even so, they deserved attention, because they represent yet another set of full-year 2015 figures that offer an unusually informative glimpse of where the economy stands. P.S. – they put yet another nail in the coffin of claims that American wages are taking off or about to.
Perhaps most surprising: A trend I spotted last year is holding: Pay gains have lagged badly in the professional, scientific, and technical services category – sectors that include many of those knowledge jobs widely considered crucial to the nation’s future competitiveness and prosperity, and where companies are constantly crying “Labor shortage!” and (successfully) demanding more immigrant workers.
The compensation figures make up the Employment Cost Index (ECI). They suffer two drawbacks compared with the wage numbers that come out each month in that they’re not adjusted for inflation, and they’re only issued quarterly. But the ECI measures salaries and benefits, too, so it reveals more about a larger share of the U.S. workforce. And what they reveal is not only slowing increases in overall compensation over the longer haul, but even over the past year.
According to these data, from the first quarter of 2014 to the first quarter of 2015, total pay in America grew by 2.75 percent before accounting for price changes. (I don’t bother looking at the numbers for public sector employees, because their pay reflects political decisions more than market forces, and therefore tell us little about the state of the economy.) In the fourth quarter, this growth had slowed to 1.88 percent.
Moreover, that fourth quarter annual increase was the third worst such performance since 2001-02, when this series begins. The worst came in the recession year 2008-09 (1.19 percent) and the second worst was 2011-12’s 1.82 percent. This is wage inflation?
The compensation picture doesn’t look much better – possibly unless you’re an employer – when we compare this recovery’s trends with that of its predecessor (the only one on record). That’s the economics world’s best version of apples-to-apples data (along with comparing recessions). During the six-year expansion of 2001-2007, the ECI rose by a total of 21.71 percent. During the current recovery, which has been slightly longer, this figure has been only 13.79 percent.
One relative bright spot: manufacturing. Over the past year, some pickup can be seen in the growth of compensation in that sector – from 2.37 percent annually during the first quarter to 2.50 percent in the fourth quarter. Moreover, that fourth quarter 2014-15 advance was manufacturing’s best fourth quarter increase since 2010-2011, and its improved every year since then.
The current recovery has seen smaller gains in the manufacturing ECI than during the last recovery. But the gap was smaller than for private sector workers as a whole: 21.21 percent versus 15.38 percent.
And compared with that high tech professional, scientific, and technical services, grouping, manufacturing pay was just killing it. In those allegedly labor-short industries, compensation not only grew more slowly over the last year – the growth rate cratered. During the first quarter, it rose by 3.61 percent over the first quarter of 2014. By the fourth quarter, this increase was down to 1.58 percent. That’s also the category’s third worst fourth-quarter-to-fourth quarter gain since government data started being published (for 2003-04). It trailed only 2004-05’s 1.31 percent, and recession-ary 2008-09’s 0.53 percent.
Over the last two recoveries, compensation in these sectors of the future looks dismal, too. During the previous expansion, it reached only 15.05 percent – but that only takes into account four years of data. If this growth rate is projected out to six years, however, it still only comes to 22.58 percent. That’s just slightly better than the pay growth for the private sector as a whole. But during the current recovery, professional, scientific, and technical services pay growth sank to 12.72 percent – meaningfully slower than that for the entire private sector.
As anyone schooled in economics knows, when anything is inflating, its costs should be rising ever faster. And when anything is in short supply, its costs should be inflating. That neither of these developments has been visible in the U.S. economy makes clear that those claiming wage inflation are either fools or – far more likely – self-seeking knaves.