(What’s Left of) Our Economy: The Wage Inflation Story is Getting More Complicated

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compensation, ECI, Employment Cost Index, inflation, Labor Department, minimum wage, pay, wages, {What's Left of) Our Economy

Last week more evidence came in concerning claims that America is undergoing or verging on a new round of dangerous wage inflation (or any wage inflation), and the government has just provided a special bonus! The good people at the Labor Department, which tracks these trends, recently informed me that it not only keeps figures on overall compensation (the Employment Cost Index, or ECI), but that it also adjusts these numbers for inflation. So it’s possible to get a better fix on whether pay is keeping up with or trailing price changes in the rest of the economy – and also on how U.S. compensation nowadays has been performing in historical perspective.

First, the pre-inflation results from the latest ECI – which covers the second quarter of this year. For all private sector workers (whose pay is set largely by market forces, not government decisions), wages, salaries, and benefits combined increased by 2.35 percent over the second quarter of 2015. That’s better than the 1.79 percent year-on-year rise for the first quarter, and than the 1.90 percent improvement registered between the second quarters of 2014 and 2015. In fact, it’s the best year-on-year gain during the current recovery.

The trouble is, the current recovery is still a low bar. Annual increases dwarfing that 2.35 percent were common beforehand, and going back to 2001 (when the ECI was created). In fact, during the seven years of expansion covered by these latest ECI data, employment costs have risen by 15.16 percent total. That’s still well behind the 21.71 percent total increase during the previous recovery – which lasted only six years, and which is not widely viewed as a Golden Age for employees.  

Further, we shouldn’t forget about the impact of the latest burst of state and local level minimum wage hikes. However overdue you think they are or aren’t, it’s important to recognize that they have nothing to do with the underlying strength or weakness of labor markets.

When you adjust for inflation, however, a more complicated story emerges. On the one hand, over the last two or so years, there’s definitely been some overall compensation acceleration. After going nowhere for most of the current recovery, the real ECI rose by 1.50 percent year-on-year in the fourth quarter of 2014, and by 2.70 percent in the first quarter of 2015 (when, to be sure, many of these minimum wage hikes kicked in).

Since then, although the annual rates of increase have slowed markedly, they’re still much better than during the recovery’s early phase. The big question they raise going forward is whether they can stay above one percent, especially since the economy’s growth is slowing markedly.

Over a longer period of time, the current recovery’s real ECI performance looks better historically speaking, but not by a wide margin. During its seven data years, overall compensation is up a total of 3.10 percent. The figure for the previous (six-year) expansion? 2.36 percent.

Moreover, during the 1980s expansion, which lasted slightly longer than seven years, the real ECI advanced by 4.25 percent. During the 1990s recovery, which ran just under a decade, the real ECI was up 7.61 percent. In other words, their annual average gains were both considerably better than those of the current expansion.  (The data for these previous expansions is found in a separate Labor Department report.)

So here’s one way to think about wage inflation: If your working memories or knowledge of the U.S. economy don’t go back past Y2K, you might legitimately be concerned. If you’re aware of the nation before this century, not nearly so much.

(What’s Left of) Our Economy: Medical Jobs are Still Where the Money Is

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compensation, doctors, healthcare, inflation, Jobs, pay, physicians, southeast, wages, {What's Left of) Our Economy

Even when I was a know-it-all teenager, I strongly suspected that my parents were right when they told me, “Be a doctor if you want to make the best living.” But judging from a new data dump by the U.S. Labor Department, they (and the countless others like them) were off-the-chart geniuses. For it shows that physicians flat-out dominate the rankings of America’s best-paying jobs.

These Labor Department statistics list wages for more than 800 occupations in all the nation’s metropolitan areas. So the total number of entries in this study – which you can examine on this spreadsheet – is 134,475. Then, the Department did something new. It adjusted these wages for the cost of living in these locations. And the results are startling.

Medical professionals occupied the top 242 slots in these rankings. And all but one category – nurse anesthetists in greater San Antonio, Texas – were MDs. Healthcare’s dominance extended much further down this ladder, too. Of the top 500 metro job classifications, medical professionals accounted for 488.

As expected, “chief executives” also do well in America. They represented the other classifications in the top 500, but there were only 12 of them in this group. And interestingly, they were clustered in the southeast (nine) and North Carolina in particular (six).

Not until ranking number 530 do you find a non-healthcare, non-chief executive job among the leading U.S. wage earners. That distinction belongs to economists in the Columbus, Ohio region. And remarkably, of the top 1,000 listings, only two others fell outside healthcare occupations and chief executives: training and development managers in Spartanburg, South Carolina (number 906) and judges and magistrates in some of the east suburbs of Los Angeles (number 962).

What about those information technology jobs that the conventional wisdom touts as the future of (worthwhile) U.S. employment? The first one showing up that’s a non-chief executive position comes up at number 1,362 – computer and information systems managers in Johnstown, Pennsylvania.

Some important qualifications need to be mentioned. These figures claim to measure actual pay per hour, but seem to leave out compensation like bonuses and stock options – so chief executive pay here could well be significantly understated. In addition, if national inflation (and therefore cost-of-living) data are controversial, you can bet that even more uncertainty surrounds regional figures. And of course, gauges of pay tell us nothing per se about job satisfaction or stress or anything else about non-monetary working conditions.

All the same, results this skewed toward one occupational field can hardly be ignored. They also track with healthcare’s growing share of the economy based on total spending. (It hit 17.5 percent in 2014 – up 5.3 percent over 2013 levels.) The next step for the Labor Department is to figure out how these patterns have changed over time. For now, though, it’s looking clearer than ever that my parents and their peers were right about high-paying jobs – though I’m pretty confident that they wouldn’t have advised me to move to Ft. Smith, Arkansas or Brownsville, Texas. That’s where the Labor Department tells us that doctors’ pay goes furthest.