This morning’s real wage figures from the Bureau of Labor Statistics (BLS) once again vividly remind us how important baselines are in measuring economic trends and evaluating their strengths. They just as vividly underscore the importance of overall inflationary and deflationary trends in the economy in calculating these wage data – which especially over the short term have nothing to do with workers’ genuine earnings, bargaining power, and success in keeping up with living standards. To me, the bottom line for these latest (January, 2016) numbers is that real wages in America continue to go nowhere.
BLS reported today that inflation-adjusted wages for the entire private sector rose by 0.38 percent month-on-month – the best sequential advance since August’s virtually identical reading. (Government workers aren’t measured here because their pay is determined overwhelmingly by politicians’ decisions, not fundamental labor market conditions.)
Moreover, the December monthly constant dollar wage improvement was revised up from 0.09 percent to 0.19 percent. As a result, the December year-on-year (and full-year 2015) figure increased from 1.82 percent to 2.01 percent. That’s the best such performance since 2008 – when many employers facing a strengthening recession were quickly shedding less experienced, lower-paid workers and therefore statistically pushing real wages way up.
Yet the new January number (which, like December’s, is still preliminary), means that January, 2015-January, 2016 after-inflation wage increases totaled only 1.14 percent. That’s much lower than 2014-2015’s 2.43 percent, but much higher than the previous 0.39 percent advance. In fact, the most recent January-January increase was the biggest such improvement 2009’s 3.70 percent – which was also boosted by the aforementioned recession-era downsizing strategy.
At the same time, here’s where those problematic economy-wide inflation data come in. January, 2015 was one heck of an unusual inflation month. Sequentially, core prices fell then by 0.64 percent. That’s the biggest drop by far since December, 2008, when the financial crisis was peaking and the economy seemed about to fall off a cliff. The harsh winter weather at the end of 2014 and the start of 2015 was clearly a big reason, and it has major effects on all comparisons based on January, 2015.
Another problem with this (and previous) January data: As I’ve previously noted, lots of state and local minimum wage hikes have kicked in during those months. These government-mandated decisions have as little bearing on labor market conditions as the government’s own pay levels.
So my own preference is to look over the longer term, and in particular, to compare real wage trends among recent economic recoveries – which provides the best apples-to-apples data. Unfortunately, BLS creates a problem here. Its figures on inflation-adjusted wages for all private sector workers only go back to March, 2006. So they can reveal what’s happened to these wages since the current recovery began – in June, 2009. (They’re up in toto by 3.39 percent.) But they can’t tell us what happened in previous recoveries.
One way to address the problem is to use BLS’ figures for production and non-supervisory private sector workers. This is of course a different group than all workers, but the data here go back to 1964, and these “blue collar” Americans currently make up more than 82 percent of the entire private sector workforce. As a result, they’re pretty representative.
During the current recovery, price-adjusted wages for this large group of U.S. workers is up 3.85 percent – a faster rate than that for all workers. And it’s a much faster rate than for the previous, bubble-era recovery (which was only a little shorter). Then, real blue-collar wages inched up by only 0.35 percent. Wages during this expansion are up less than during its 1990s counterpart (6.64 percent), And that’s the case even factoring in their different durations. That “Clinton boom” lasted nearly ten years – about one and a half times longer than the current expansion. But real wages advanced by nearly twice as much.
During all these expansions, real blue-collar wages have performed better than during the so-called Reagan recovery of the 1980s. During that expansion, which like the current recovery also lasted about six and one half years, these wages actually fell by 1.86 percent. Even though the significant expansion preceding the Reagan recovery was much shorter – lasting from only March, 1975 to the end of 1979 – inflation-adjusted blue-collar wages sank even faster – 3.19 percent. Then, of course, inflation was at recent historic highs.
Therefore, the current recovery looks pretty good, real wage-wise. But there’s one other expansion we can examine – that during the 1960s. Data for the entire upswing, which ran from February, 1961 through November, 1969, isn’t available from BLS. But between January, 1964, when the numbers begin, through the expansion’s end, inflation-adjusted non-supervisory wages shot up by 8.58 percent. No wonder this period is seen as a Golden Age by many of those old enough to remember it firsthand.
Two other developments also take much of the shine off today’s wage growth. First, the current expansion is getting long in the tooth, and thus it’s unclear how much more inflation-adjusted wages will rise going forward. And second, despite the big real wage increases of the 1960s, America’s productivity was rising much faster than today as well. So “let the buyer beware” still seems like good advice for information consumers today when confronted with claims of worrisome wage inflation.