(What’s Left of) Our Economy: Why Wage Inflation Claims are Still Grossly Inflated

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benefits, compensation, ECI, Employment Cost Index, inflation, salaries, wages, workers, {What's Left of) Our Economy

If you were examining whether American workers’ pay was finally beginning to rise at a rate consistent with a lengthy economic recovery and an apparently tight labor market, wouldn’t you focus on pay adjusted for inflation – which gauges whether these workers are keeping up with living costs? And wouldn’t you focus more on trends in the private sector (where wages, salaries, and benefits are set mainly by market forces, and therefore say something meaningful about the economy’s fundamentals) than in the public sector (where they’re set by government fiat)?

The alarm and enthusiasm (depending on your perspective) with which last week’s Labor Department figures on employment costs were greeted makes clear that both these best practices of economic analysis were widely ignored.

As the Department reported, the Employment Cost Index (ECI) – the compensation measure that includes all forms of pay and benefits – rose 2.71 percent on year in the first quarter of this year for “civilian workers.” That category includes the public sector, and was indeed the strongest such increase since 2008.

The numbers were even better in private industry: a 2.81 percent yearly gain. That’s also the best since 2008 (the third quarter’s 2.84 percent).

Adjust for inflation, though – that is, see the extent to which workers are staying ahead of living costs, not to mention the extent to which they are leading overall price rises – and the story looks very different.

According to the price-adjusted ECI issued by the Labor Department, during the first quarter of this year, compensation for civilian workers increased by 0.38 percent year-on-year. That’s actually lower than the annual increase for the previous quarter (0.48 percent). In fact, on a sequential (quarter-to-quarter) basis, the real ECI fell (by 0.29 percent).

That annual gain was indeed better than that for the first quarter of 2017 – when there was no increase in the inflation-adjusted ECI at all. But it wasn’t as good at the 0.87 percent improvement from the first quarter of 2015 to the first quarter of 2016. And it wasn’t even close to the 2.59 percent rise registered between the previous first quarters. So let’s recognize that, during the first quarter of 2018, the real ECI did nothing special – at best.

The story is just as unexciting – and contrary to accelerating wage inflation claims – in the private sector. Its real ECI increased by 0.39 percent annually during the first quarter, and also fell (by 0.19 percent) sequentially.

Between the previous first quarters, the real ECI flat-lined, too, after advancing by 0.97 percent the year before and 2.70 percent the year before that.

Some day, American workers may actually experience another genuine acceleration in their real compensation, and thus a genuine increase in their living standards. But looking at the most revealing version of the Employment Cost Index makes painfully clear that that day still lies in the future.

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(What’s Left of) Our Economy: A New Set of Mixed Signals on Worker Pay

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ECI, Employment Cost Index, inflation, Jobs, manufacturing, recovery, wages, workers, {What's Left of) Our Economy

Is the long-beleaguered American worker finally starting to see some significant compensation benefits from an unemployment rate that’s been falling toward historic lows? Some data that provides possibly the most important evidence came out this morning, and the answer is a firm “Maybe.”

I’m talking about the Labor Department’s Employment Cost Index (ECI) – but not the series that usually attracts the most attention, which isn’t adjusted for inflation. What’s not widely known is that Labor also puts out real ECI reports, and the latest paints to an unusually ambiguous “glass half empty-half full picture.” Not to mention how hazardous it always is to draw conclusions over short-term changes.

To remind, the ECI arguably is a better gauge of worker pay since it counts not only hourly wages but benefits. And as usual, we’ll focus on private sector workers. (I don’t bother with government workers, since their compensation largely reflects politicians’ decisions, not economic fundamentals.)

Optimists will note that the new fourth quarter, 2017 report shows that the private sector ECI rose sequentially by 0.48 percent. That’s the biggest such percentage increase since the fourth quarter, 2015’s 0.97 percent, and sure beats the heck out of the third quarter’s 0.10 percent dip.

But pessimists will note that that 2015 improvement vanished almost instantly. As for the annual change, the 0.48 percent rise was nothing special. It beat the third quarter’s 0.29 percent, but trailed the second quarter’s 0.68 percent.

Also supporting the pessimists’ case has been the inflation-adjusted ECI’s performance during the current economic recovery versus that for the previous expansion. (The real ECI data set only goes back to 2001).

Since the second quarter of 2009, constant-dollar private sector employment costs are up 4.20 percent. That’s actually better than the 2.36 percent achieved during the previous recovery. But that expansion lasted only six years (from the fourth quarter of 2001 through the fourth quarter of 2007). The current recovery is more than eight years old. Over its first six years, after-inflation employment costs were up just 1.70 percent.

Manufacturing’s real ECI performance was somewhat better. The fourth quarter’s 0.57 percent rise was the best sequential advance since the third quarter of 2015 (0.70 percent). But the 2017 annual increase – also 0.57 percent) was the highest only since the third quarter of 2016 (0.99 percent).

The most significant sign of progress in industry comes from the recovery-to-recovery comparison. During this expansion, price-adjusted employment costs for manufacturing have risen by 5.65 percent. That’s considerably faster than the 1.99 percent during the previous recovery, as is the current recovery’s advance during its first six years – 2.98 percent. So maybe these latest gains stand a better chance of lasting than those of their private sector counterparts?

But there’s no shortage of reasons for continued uncertainty. A bunch of minimum wage hikes across the country have kicked in this month, which should influence the next set of real ECI data. The new business tax cuts may help as well. And don’t forget the certainty of rising federal budget deficits, either with or without a big boost in infrastructure spending. Hanging over the future also, however, is the strong likelihood of continued Federal Reserve monetary tightening – and how interest rate hikes may be interpreted by businesses. All of which means that the next real ECI report – due out at the end of April – will merit unusually close scrutiny.

(What’s Left of) Our Economy: Trump & Workers, by the Numbers

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blue-collar workers, construction, healthcare services, Helaine Olen, inflation adjusted wages, Jobs, manufacturing, mining, real private sector, real wages, regulation, Steven Greenhouse, subsidized private sector, The Nation, The New York Times, Trump, unions, wages, workers, {What's Left of) Our Economy

Since Donald Trump first declared his presidential candidacy, he’s been dogged by charges that he’s a phony populist, and that his working class supporters have long been hoodwinked by his promises of restoring factory and other blue collar jobs and living standards. And this past Labor Day inspired the President’s critics to double down, as evinced by this piece by long-time labor reporter Steven Greenhouse in The New York Times and this one by economist Helaine Olen in The Nation.

So it seems appropriate for RealityChek‘s slightly delayed analysis of the latest monthly jobs report to include some data bearing on these questions. The verdict? Whatever anti-union and deregulatory measures the Trump administration has backed, its first months in office overall have been just about as good for blue-collar industries and blue-collar employees as during the latest comparable period during the supposedly worker-friendly Obama administration.

First, the manufacturing highlights of last Friday’s August jobs report:

>August saw the best month of net new job creation in U.S. industry since August, 2014 (36,000 in each month.

>Although the August and July totals are still preliminary, their combined sequential employment increase of 62,000 was the highest such figure since the 68,000 improvement in December, 2011 and January, 2012. This back-to-back total reduces the odds that the August numbers are a fluke.

>On a year-on-year basis, manufacturing’s August gain of 138,000 contrasts strikingly with the 5,000 net job loss in industry between the previous Augusts. In fact, this new annual advance was manufacturing’s strongest since the 139,000 yearly gain in August, 2015.

>Reenforcing this conclusion are the strong upward revisions for monthly manufacturing job growth in June (from an upwardly revised 12,000 to 21,000) and for July (from 16,000 to 26,000)

>Manufacturing has now regained 1.027 million (44.79 percent) of the 2.293 million jobs it lost from the onset of the last recession (at the end of 2007) through its jobs bottom in February and March, 2010.

>Yet manufacturing employment is still down 9.21 percent since the downturn’s beginning. During that period, overall private sector employment is up by 7.23 percent.

>Manufacturing’s wage performance, however, slumped notably in August. Pre-inflation wages sank sequentially by 0.56 percent – the worst such drop since May, 2012’s 0.63 percent.

>It’s true that manufacturing wages have been volatile this year, with July recording a strong month-on-month gain of 0.53 percent. But the yearly August manufacturing wage rise of 1.76 percent not only trailed the previous August-to-August rise of 2.68 percent. It was also the smallest annual increase since July, 2015’s 1.57 percent.

>By contrast, August current dollar wages in the private sector overall were up by 0.11 percent sequentially and 2.53 percent year-on-year. The latter total was just slightly below the 2.55 percent increase achieved between August, 2015 and August, 2016.

>Since the current recovery began, in mid-2009, pre-inflation manufacturing wages have risen by only 15.25 percent total. For the private sector overall, they’ve increased by 19.20 percent.

>As a result, the gap between private sector pre-inflation wage increases and those gains in manufacturing stood at 20.57 percent in August. One encouraging development for manufacturing workers: Last August, the gap was much wider: 27.92 percent.

>On an after-inflation basis, manufacturing’s wage performance remains mixed compared with the rest of the private sector. The latest data are from July, and show a monthly gain of 0.37 percent for manufacturing workers and 0.19 percent for the private sector overall – barely half as much.

>Year-on-year, however, manufacturing’s real wage gains slightly lagged those of the private sector in toto in July – 0.74 percent versus 0.75 percent.

>And the gap is even wider during the current recovery – inflation-adjusted wage gains of only 1.96 percent for manufacturing workers during this more than eight-year period, versus an improvement of 4.75 percent for the entire private sector.

But what about the Trump-Obama comparison? Here are the main numbers, using February as the first plausible month of “Trump-onomics”:

>From this past February through August, total net new U.S. job creation is up by 0.66 percent, versus 0.83 percent from last February through last August – the final such period during Mr. Obama’s presidency. So score one for the previous administration? Maybe. But the economy is also deeper into the recovery, and just about at the official definition of full employment. So it’s natural that job-creation should slow down some.

>Interestingly, the difference is much smaller when looking at private sector job creation. Last February through last August, it grew by 0.84 percent. During the comparable Trump period, it’s increased by 0.79 percent. That’s one sign that the Trump employment performance has been healthier, and therefore more sustainable, because it’s been more private-sector driven, than the late Obama version.

>This difference becomes even more pronounced when looking at trends in the subsidized private sector – those industries traditionally considered private sector (notably healthcare) that nonetheless depend heavily on government subsidies. Hence my decision to place them in a separate category.

>So far this year, under President Trump, subsidized private sector jobs have indeed increased strongly – by 0.95 percent. But that’s a much slower rate of growth than the 1.29 percent recorded during the comparable Obama months.

>As a result, employment growth in the “real” private sector has been faster under Mr. Trump – by 0.76 percent to 0.74 percent – and this, again, despite the arrival of full employment.

>Continuing sector by sector, the statistics show that the some of the biggest employment gains during President Trump’s tenure have taken place in blue-collar heavy industries that performed poorly during the comparable final Obama period.

>Principally, net employment from this past February through August is up by 0.83 percent in manufacturing, by 4.96 percent in mining and logging, and by 0.68 percent in construction.

>The comparable Obama administration numbers: -0.27 percent, -6.90 percent, and +0.63 percent, respectively.

>More broadly, blue-collar employment throughout the entire economy (defined by the Bureau of Labor Statistics as production and non-supervisory workers) has increased at the same pace during the two time periods in question (0.70 percent), though in absolute numbers, the Trump administration gains are a bit larger (714,000) than the corresponding Obama administration advances (701,000) – again, despite the arrival or near-arrival of full employment.

>Where blue-collar workers fared better so far during the Obama period than during the Trump period is on the wage front. But they haven’t fared massively better.

>For all private sector production and non-supervisory workers, pre-inflation wages were up by 1.36 percent during those Obama months, and 1.19 percent during the Trump months.

>The same trends have been visible in the blue-collar industries. During the Obama months in 2016, current-dollar wages rose by 1.78 percent in manufacturing, 0.82 percent in mining and logging, and 2.60 percent in construction.

>The Trump results? 1.26 percent, 0.87 percent, and 1.98 percent, respectively.

>In other words, the only blue-collar sector in which blue-collar workers have outperformed under President Trump has been in the mining sector – which has seen by far the biggest employment outperformance.

Of course, the Trump administration is still pretty young, and any or all of these trends could change, and change dramatically, in the months ahead. But until they do, it’s clear that Mr. Trump’s presidency has neither devastated the workers who supported him so ardently or made their lives Great Again. And any analysts denying that the truth so far lies somewhere in between – including the administration’s own grandstanders – have some explaining to do.

Following Up: Mercury News Treats H1B Debate as Non-News

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Following Up, H1B, immigrants, Immigration, journalism, Mercury News, Neil Chase, Norman Matloff, Ro Khanna, Silicon Valley, tech, tech workers, workers

The story of the video of a major debate on U.S. immigrant tech worker policies that earlier this week looked like it was being kept under wraps now looks like the story of a video that never was – due to some astonishingly unenterprising journalism from the Mercury News, Silicon Valley’s main newspaper and therefore a leading source of information on the technology industry.

As RealityChek regulars know, the story began with a June 1 debate in Silicon Valley centering on the controversial H1B immigrant visas. Squaring off were the Valley’s new Democratic Member of Congress, Ro Khanna and Norman Matloff, a professor of computer science at the University of California, Davis. (A tech entrepreneur took part in the event, too, but in a minor way.)

Technology companies claim that the H1B and similar programs are crucial to accessing the world’s best talent. Critics charge that they’ve overwhelmingly been used to cut their costs by replacing native-born U.S. workers with much cheaper foreign counterparts. Khanna favors relatively modest changes to H1B policies; Matloff believes major surgery is needed.

Matloff, who’s become a valued friend of mine, has written that the event marked  the first time a debate has been held between an elected official and a researcher on the topic, a major event in that sense. (Khanna has not disagreed.) Matloff also noted that a videographer from the Mercury News was present and apparently recording the proceedings.

Yet the Mercury News failed to cover the debate and never posted a recording on its website. Matloff asked a reporter on the paper to find out why, and was told that a recording existed, but that “it was essentially scrapped as a standalone report, but there’s apparently a possibility that parts of it will be used in coverage of Rep. Khanna. Not sure the reason(s) for this…” Matloff then speculated that the paper failed to make the video public because Khanna performed poorly – leading the Mercury News, which editorially has sided with the tech industry on H1B and related issues, to consign it to non-event status.

I emphatically agreed that the video’s import deserved to see the light of day, and last Sunday urged the Mercury News to post it both to perform a public service on a major technology policy area and to affirm its journalistic chops. Gratifyingly, the post and follow-up tweets prompted Khanna readily to agree, and to call openly for the video’s posting. (For the record, he contends that it was Matloff who was highly ineffective.)

Two days later, Matloff and I got answers from Mercury News editor Neil Chase. In the version he sent Matloff, he wrote, “We had a photographer there who captured some still photos and some video for use with a future story, but we didn’t attend with the intention of taping the full debate and did not.”

Based on information Matloff had shared with me and my own journalistic experience, yesterday, I sent Chase the following email. I had hoped to get a response from him in time to prepare this post, but no such luck yet:

Dear Neil,

Many thanks for your comment to my blog and my apologies for the short delay in responding.  

I must confess, though, that the response leaves me somewhat mystified on two counts.

First, the statement that the Mercury News videographer did not “record the whole event” doesn’t track with an email from one of your reporters, Ethan Baron, to Matloff.  Baron said, in response to the latter’s query re the video’s availability, “it looks like the video was essentially scrapped as a standalone report, but there’s apparently a possibility that parts of it will be used in coverage of Rep. Khanna.”  Granted he’s conveying some uncertainty here. But Matloff also has written in his blog that “the videographer seemed to be taping continuously.”  In addition, Matloff noted that “the video cam [was] on a high tripod, seemingly much for an occasional clip.”

Similarly, it sounds odd, as your email indicates, to give the videographer the responsibility for choosing the portions of the debate to be shot.  Was this the case?  If so, what were the criteria used to determine what was captured?  Or were they simply taken to get a bit of file footage of each participant, irrespective of what they were saying at the time?  

Second, I certainly don’t mean to tell you how to do your job.  But as someone with a journalistic background, I’m hard pressed to understand the paper’s seemingly offhand attitude toward this event.  After all, the H1B issue has been described as crucial by the dominant industry in the region served by the Mercury News, and it’s surely of comparable importance to all your tech worker subscribers.  The new Congressman from your area, Rep. Khanna, has been touted by several national publications as a rising star in the Democratic party, and possibly all of national politics.  To his credit, he was willing to appear in public with an outspoken, prominent critic of the H1B and related programs – a rare event at the very least, according to Matloff.  And of course, H1B and other immigration issues have become even greater controversies nationwide since the last presidential campaign heated up.  So from all appearances, the leading paper of Silicon Valley would be expected to view the debate was highly newsworthy from the get-go.  And yet it seems from your email that no coverage was ever planned.  

Now it’s clear that some fur was flying at the event, and that Rep. Khanna and Matloff are begun feuding in public over what was said and over their qualifications to claim expert status on the issue.  I.e., because of this aftermath, their debate has become by any reasonable definition even more newsworthy.     

So I respectfully make the two following requests:

1. Would you check whatever video archive you have – including whatever the videographer might possess – to determine conclusively whether a full recording of the debate is indeed available?  (If not, I would hope to find out how it was disposed of, and why.)

2. Would you assign a reporter to cover this emerging Khanna-Matloff dispute — in which a local Congressman who’s increasingly prominent nationally has publicly gone after a critic on an issue that’s one of his top legislative priorities, and a major national concern?  The Mercury News would get an excellent scoop, and perform a valuable public service at the same time.  

Thanks for your consideration, and I look forward to your reply.

Sincerely,

Alan

As per the email, I’m still hoping that the Mercury News finds a recording and shares it, and that it reports on the differences between Khanna and Matloff, which cut to the heart of the debate on H1B and broader questions and arguments concerning the future of the domestic workforce in an age of rapid innovation. At a time when Fake News abounds, it would amount for welcome coverage of some real news.

(What’s Left of) Our Economy: As Political Wars Rage, U.S. Wages Keep Stagnating

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inflation-adjusted wages, manufacturing, private sector, real wages, Russiagate, Trump, wages, workers, {What's Left of) Our Economy

The tragedy of the continuing Trump and “Russiagate” political battles was perfectly illustrated yesterday by the release of the Labor Department’s newest data on inflation-adjusted wages. As the administration and its foes intensified a fight that’s ultimately over the legitimacy of the president’s White House win last November, the statistics made clear that the growth of Americans’ paychecks is still deeply stuck in the mud.

The real wage figures are always one month behind their pre-inflation counterparts, so the new numbers only take us through April. And they and the March results are still preliminary. At first glance, the news looked mixed. On a monthly basis, wages for the private sector (these data leave out government workers’ wages, since they’re determined largely by politicians’ decisions, not market forces) inched up only 0.09 percent in April. That was worse than March’s 0.28 percent improvement, and that March figure was revised down from the initial 0.47 percent reading.

The picture was somewhat brighter for manufacturing; April’s sequential increase of 0.46 percent was its best since August, 2015 (0.66 percent). But the March rise was downgraded from 0.37 percent to 0.28 percent.

And no one should be happy about the year-on-year changes. April’s was 0.37 percent for the private sector as a whole, and 0.46 percent for manufacturing. Between the previous Aprils, the numbers were 1.42 percent and 1.79 percent, respectively.

The cumulative results during this nearly eight-year old economic recovery? After-inflation private sector wages have increased only 4.07 percent, and manufacturing wages are up only 1.49 percent.

In other words, American workers – and especially those in manufacturing – have all but lost nearly eight years when it comes to their ability to keep up with the cost of living. And given Washington’s focus on the political wars, more lost months at the least are likely on the way.

(What’s Left of) Our Economy: More Signs of Better Wage Growth

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inflation-adjusted wages, manufacturing, private sector, wages, workers, {What's Left of) Our Economy

The days when Washington releases more than one set of economic data are always a little frustrating, and today was no exception. Shortly before the Federal Reserve put out the July industrial production figures, the Labor Department issued that month’s numbers on inflation-adjusted wages. They deserve attention because they add – albeit modestly – to the evidence that seven years after the current economic recovery began, American workers are finally starting to see respectable boosts in their constant dollar pay.

After-inflation private sector hourly wages were up 0.37 percent month-to-month in July – a nice turnaround from June’s 0.19 percent decline (the dip that was originally reported). More important, on a July-to-July basis, inflation-adjusted wages rose by 1.71 percent. That matched June’s rate – which was revised up from 1.52 percent.

Even the apparent fly in this ointment doesn’t look so bad upon closer inspection. These annual increases in real wages were smaller than the same 2014-2015 figures. But the numbers for that year looked strong largely because the 2013-2014 real wage improvement was almost non-existent. As stock investors would say, it was easy to beat those “comps.” Since then, we’ve seen two straight good year-on-year increases.

The bounce back in real manufacturing wages was even stronger. Between June and July, they advanced only by 0.18 percent. But that was way better than the 0.46 percent decrease the previous month. (A figure that was also left unrevised.)

Year-on-year, July hourly pay for manufacturing increased by 2.07 percent – more than for the private sector overall. It’s true that the improvement was slower than that between June, 2015 and June, 2016 (2.37 percent). But it was faster by a wider margin that the July, 2014-2015 rise (1.43 percent).

Since broader inflation-adjusted compensation statistics that include benefits also show a recent pickup, you’d figure that this is great news for Democratic presidential candidate Hillary Clinton and bad news for her Republican opponent Donald Trump. And this conclusion could be justified.

But the new real wage numbers still leave two, potentially decisive, questions unanswered: First, will voters be more focused on this good news or on how slowly their pay has risen for so long – only 3.88 percent for all private sector workers during the recovery so far, and an even more paltry 1.12 percent for manufacturing workers? And second, how long will this favorable trend last?

(What’s Left of) Our Economy: A Badly Needed History Lesson on Trade and Wages

Tags

2016 election, chattering classes, David Frum, Donald Trump, illegal immigration, Immigration, imports, labor force, Populism, Republican Party, Republicans, The Wall Street Journal, Trade, wages, William Jennings Bryan, workers, {What's Left of) Our Economy

David Frum has played an invaluable role during this presidential campaign in explaining why the rise of soon-to-be Republican presidential nominee Donald Trump has been such a deserved rebuke to the party’s out-of-touch establishment. His indictments of the GOP’s Washington-centered chattering class have been especially devastating since he comes out of the party’s Bush wing.

That’s why I was so surprised to read Frum’s claims in a Saturday Wall Street Journal article that the kinds of economic nationalist trade policies Trump says he favors were harmful to American workers when they were in effect during in the late 19^th and early 20^th centuries.

Comparing Trump to the leading political maverick of that era – Democratic populist William Jennings Bryan – Frum contends that “The great irony of [the 1896 election] was that Bryan was more right than wrong about his central issues” including freer trade, which “would have enhanced consumer purchasing power at a time when wages were growing slowly.”

The problem is, the best data we have tells exactly the opposite story: In the days when America’s (mainly Republican) presidents determinedly shielded American industry from foreign competition, the country’s workers saw their paychecks grow strongly.

As detailed in the U.S. government’s authoritative Historical Statistics of the United States, Colonial Times to 1970, from 1900 to 1929 – when the Great Depression struck – the annual earnings of U.S. employees adjusted for inflation increased by a total of 68 percent. The closest version of these figures available that covers a comparable period of time is the Social Security Administration’s average annual net compensation series. It shows that this measure of pay – during a period when U.S. trade flows have been almost unprecedentedly free – was up nearly 121 percent between 1990 and 2014.

Free trade wins hands down, then? Not by a long shot. First, those more recent statistics haven’t been adjusted for inflation. Second, during that 1900 to 1929 period, U.S. workers might have been protected from imports, but for most of those years, they were exposed to record increases in immigration – which all else equal tends to suppress wages by increasing the supply of labor.

In fact, according to Historical Statistics, before World War I’s outbreak greatly reduced immigration opportunities from Europe, the prime source region, the arrival of these newcomers regularly increased the labor supply by between 1.10 and 2.87 percent. (This figure counts only working-age immigrants who are recorded as boasting occupations.)

Total legal immigration inflows into the country recently have been roughly one million, and some 20 percent are not working age. In addition, they represent a much smaller share of the total national workforce – which currently numbers about 144 million.

It’s true that the labor available to domestic employers has been augmented as well by a sizable illegal immigration inflow. But even taking this population into account, legal immigration-fueled labor force increases in the early 20^th century were considerably higher than in the first 15 years of this century. Then, the rate of growth typically hovered around 2.50 percent annually. Since 2000, it’s only topped two percent annually once (in 2014), and has ranged from that 2.19 percent increase to a 3.76 percent plunge during the recession year 2009.

No one’s saying that policies that succeeded 100 years ago will succeed today. But the historical record remains clear. Despite unprecedented immigrant-dominated increases in the labor force, when Washington curbed imports, American workers’ pay still tended to rise healthily – and at rates most of their descendants would envy.

(What’s Left of) Our Economy: No Inflation Take-off in Wages – or Even Close

Tags

inflation, Labor Department, labor market, manufacturing, private sector, real wages, recovery, wages, workers, {What's Left of) Our Economy

More evidence appeared today that, if it’s true that inflation is starting to pick up (after years of deep slumber), America’s workers don’t deserve any blame. The Labor Department today released its latest data (for June) on overall price increases in the economy, and for price-adjusted wage increases. They and the department’s databases reveal that the workforce on the whole is barely, at best, keeping up with the cost of living.

According to the Labor Department, core inflation (i.e., prices with food and energy costs omitted, since they’re exceptionally volatile) rose 2.26 percent between June, 2015 and last month. How did inflation-adjusted wages do for the private sector? They rose only by 1.52 percent. (The Labor Department doesn’t include government workers’ wages in these statistics, since they’re determined by politicians’ decisions, not by the fundamental state of the economy.)

Workers did a little better between the previous Junes. Core inflation increased by 1.76 percent, and their price-adjusted wages improved by 1.84 percent.

But between June, 2013 and June, 2014, the story was substantially different. While core prices were increasing by 1.96 percent, real wages weren’t increasing at all. That is, they were completely flat.

Strengthening the case that real wage growth is anything but strong: June private sector wages saw a sequential drop of 0.19 percent, and have fallen for two of the last three months. As a result, hourly private sector pay is now down since March. And since the economic recovery began, in June, 2009, real private sector wages have risen only 3.49 percent.

The story in manufacturing, which historically has generated most of the economy’s best-paying jobs, is somewhat better over the short-run and somewhat worse over the long run.

Even though real manufacturing wages decreased on month in June (by 0.46 percent, much more than overall private sector pay) they rose 2.37 percent year-on-year – considerably faster than the private sector pace. Indeed, through May, after-inflation manufacturing wages had grown sequentially for eleven straight months.

June’s yearly manufacturing real wage hike was also more than twice as great as that between the previous two Junes – just 0.86 percent. But during the twelve months before, real manufacturing wages actually decreased – by 0.19 percent.

Longer-term, moreover, manufacturing remains a decided real wage laggard. Since the recovery’s June, 2009 onset, inflation-adjusted hourly pay has improved by only 0.93 percent.

Economists worry about wage inflation – and the tight labor markets it implies – because businesses have tended to react by raising prices to compensate, and that’s tended to prompt workers to press pay demands even more aggressively. The consequent spiral can be difficult to stop or even slow.

Of course, for this kind of action-reaction cycle to take hold, wages would first have to catch up with living costs. The June inflation and real wage figures show that workers might still be short of even that modest goal.

Im-Politic: More Economic Roots of Political Anger

Tags

2016 election, Bernie Sanders, chattering class, compensation, Donald Trump, Im-Politic, inflation, manufacturing, non-supervisory workers, political class, Populism, recovery, workers

Some more data has just come out from the government on how much Americans have been making at the workplace lately, and if you work with them with a little intelligence, you can see what a lousy economic recovery the middle and working classes have experienced. P.S. Do you think that at least some in their ranks might be supporting Republican presidential front-runner Donald Trump?

The statistics come from the Labor Department’s series on total employee compensation. They’re not adjusted for inflation, but they include everything from wages and salaries to benefits to the monetary cost of paid leave, vacations, and the like.

For the broadest groups examined – like “all private sector workers” – the numbers provide some support for widespread claims that low recent jobless rates are finally tightening the labor market enough to drive up pay strongly. For example, although overall compensation between the fourth quarters of 2014 and 2015 rose by a mediocre 1.21 percent, the two previous comparable annual increases of 2.63 percent and 5.70 percent respectively. These average out to advances that are quite respectable by historical standards. (The data, though, only go back to 2004.) They certainly represent a faster advance than that for the three years before – 1.20 percent, 2.95 percent, and 1.05 percent respectively.

For the manufacturing sector, the results have been even better. Following four years of painfully sluggish growth in pay, total compensation jumped by 4.83 percent in 2013, 4.52 percent in 2014, and 4.82 percent last year. (All figures, again, are fourth-quarter-to-fourth-quarter.) In fact, it looks like potentially dangerous “wage” inflation is starting to take hold, doesn’t it?

Not exactly. And here’s why. These employee compensation figures don’t separate management and executives on the one hand from non-supervisory workers on the other, either for the entire private sector or for manufacturing. But they do provide economy-wide statistics for those employed in two good proxy categories: production occupations; and installation, maintenance, and repair occupations.

Workers in the former category have actually seen their total compensation fall slightly for the last two years, after good 2.81 percent and 3.32 percent gains. Workers in the latter category have recently been on a roller coaster. Their total compensation increased by 2.38 percent in 2013, surged by 4.28 percent in 2014, and then plunged by 1.55 percent last year.

The gap between these blue-collar workers and the rest of the American labor force becomes much clearer upon examining cumulative compensation increases since the current economic recovery began, in the second quarter of 2009. During that period, here are the total compensation gains for major groups of U.S. employees:

All private sector workers: +15.61 percent

All management, business, and financial occupations: +21.76 percent

All manufacturing workers: +20.12 percent

All production workers: +8.96 percent

All installation, repair, and repair workers: +8.14 percent

When looking at those last two categories in particular, please keep in mind that these represent the trends over nearly seven years. Please also keep in mind that, although inflation rates have been weak judging by the official figures, prices for housing, health-care, and higher education have been rising at much faster rates.

In other words, once they figure out a serious response to the Trump insurgency (and, in many respects, to the success of Democratic presidential challenger Bernie Sanders), America’s political, chattering, and policy classes will be entitled to scorn and bemoan and bewail and condemn the success of populist, outsider political candidates. But not one moment before.

(What’s Left of) Our Economy: Inflated Claims of Real Wage Inflation

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BLS, blue-collar workers, Bureau of Labor Statistics, inflation, inflation-adjusted wages, labor market, private sector, productivity, recession, recovery, wages, workers, {What's Left of) Our Economy

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.