Although American workers’ pay has kept falling behind living costs this entire year on net, some serious students of the economy (see, e.g., here and here) seem to believe that they’re already starting to fuel the lofty inflation the nation has experienced recently, or will soon begin to.
So I thought that today I’d add to the evidence I’ve already presented (see, especially, here and here) making clear that nothing of the kind has happened so far during 2021, and no signs of this kind of “wage-price spiral” are yet visible.
The first new set of figures clashing with fears of what’s also called “wage push” inflation is below, in a table comparing the monthly overall inflation rates as measured by the U.S. Labor Department’s Consumer Price Index, and the monthly changes in pre-inflation hourly wages (also tracked by the Labor Department.
Monthly inflation rate this year pre-inflation wages this year
Dec-Jan: 0.26 percent 0.03 percent
Jan-Feb: 0.35 percent 0.27 percent
Feb-March: 0.62 percent -0.10 percent
March-April: 0.77 percent 0.66 percent
April-May: 0.64 percent 0.46 percent
May-June: 0.90 percent 0.43 percent
June-July: 0.47 percent 0.36 percent
July-Aug: 0.27 percent 0.39 percent
Aug-Sept: 0.41 percent 0.59 percent
Sept.-Oct: 0.94 percent 0.36 percent
As the table shows, in only two months so far – August and September – has the increase in the pay received by workers exceeded the increase in total U.S. prices. And in October, the gap between inflation rates and wage increases expanded again to its widest extent of the entire year. Indeed, the October current dollar wage increase matched the smallest secured the entire year.
If a wage-powered inflationary spiral was underway, then exactly the opposite would be taking place. Workers would continue seeking raises that consistently topped inflation rates, and employers would continue raising their prices in bids to keep up. And you certainly wouldn’t see the wage gains losing momentum instead of gaining momentum.
The second set of figures debunking the wage-push inflation claims and fears was inspired by my buddy Widge, who I first met on Twitter, and whose insights on the economy and many other subjects I’m always learning from. (Widge has always been too modest to use his name, but I know he’s a real person because we’ve had dinner together.)
Last week, Widge tweeted a chart illustrating the astronomical spike in prices of new motor vehicles and accompanied it with the question, “Do you think it is wages of 4 million fewer payroll employees that are driving the massive inflation of new Autos in the past year?”
Widge’s tweet prompted me to ask a slightly different question: “How do price increases in the hottest inflation sectors of the economy compare with the wage trends in those industries”? Presumably, if the United States was already experiencing wage-push inflation, worker pay in sectors where prices have jumped over the past year faster than the overall annual inflation rate (5.4 percent for September) would be unusually high, too.
Unfortunately, the industry-by-industry wage and price data tracked by the Labor Department don’t always match up, but the table below presents the results for ten high-inflation sectors from all over the economy, and they won’t make the wage-price spiral crowd happy, either. (I’m using September’s statistics because that’s the latest data month for which the most numbers are available.)
Sept. 2020-2021 CPI change Sept 2020-21 wages change
non-poultry meat: 12.6 percent 6.84 percent
poultry: 6.1 percent 13.01 percent
restaurants: 5.3 percent 12.21 percent
furniture/bedding 12.0 percent 6.79 percent
new vehicles 9.8 percent -0.54 percent
used vehicles 26.4 percent -6.46 percent
motor vehicle parts 8.8 percent -4.19 percent
hotels/motels: 17.5 percent 12.76 percent
laundry/dry cleaning 6.9 percent 10.60 percent
gasoline*: 49.6 percent 10.57 percent**
**gas stations without convenience stores
After all, in the ten sectors shown, pre-inflation wages have surged faster than prices in only three – poultry processing, restaurants and other eating places, and laundry and dry cleaning services. And in three of the ten industries (new motor vehicles, used motor vehicles, and motor vehicle parts) wages have actually fallen before inflation is taken into account. Again, if wages were the main, or even a prime, inflationary culprit, they’d generally be rising faster than prices overall.
No one in his right mind can rule out the possibility that a wage-price spiral will be ignited. Workers are still returning to the job market at a relatively slow rate. Funds from the CCP Virus relief bill ae still being injected into the economy, more infrastucture and related spending will soon start being released, and still more will be on the way if the Senate passes a version of President Biden’s Build Back Better bill that’s close to the measure the House has approved.
But for now, anyone blaming American workers for recent inflation can be rightly accused of blaming the victim.