This is a familiar story by now, but the BLS released the latest figures for full-time weekly earnings yesterday so we might as well take a look at them. Here they are:
Men's wages are down 3.7% since the start of the pandemic and women's wages are down 1.5%. Since their peaks in summer 2020, both men and women have seen an unbroken string of wage declines.
There are plenty of signs that the labor market is tight right now. Unemployment is at 3.6%. Unfilled job vacancies are at an all-time high, skyrocketing from 4.6% of the workforce before the pandemic to 7.4% today. The Labor Force Participation Rate for prime-age workers has been rising steadily since the middle of 2020 and is now only about half a percentage point below its pre-pandemic level.
But then there's wages, possibly the single best overall measure of labor market tightness. And wages are down, down, down. If the labor market really is tight, how is it possible for real wages to decline for a full 24 months in a row?
One factor is the extremely high cost of housing making it very difficult for workers to up and move in order to seek a higher paying job. Another factor that has contributed to this for decades is the fact that both partners in two-person households are working fulltime, meaning again one can't up and leave seeking better pay elsewhere.
Early retirements. Boomers are leaving the job market. They may come back part time as consultants, so less annual salary.
Part time consultants make less? I thought consultants always commanded a higher payment than regular workers. Of course, annualized could be less, as you specify.
That can happen a lot in gov't, especially if they can retire early. With Covid, I think retirees were staying away, and only partially coming off the sidelines.
As for companies, they are looking to keep payrolls down. Pilot unions claim airlines are not trying to bring back older pilots--saves on costs. With everything being done on a computer, older workers tend to be relegated to legacy systems that are also being phased out. I'm sure COBOL is still be used somewhere.
Kevin, not everyone is as enlightened as you are regarding the need to adjust dollar-denominated time series for inflation.
Managers see themselves as having given huge wage increases over the last 24 months. Somewhere in their minds, I'm sure most of them know that inflation is running higher than those wage increases, but that isn't how the human psyche works. "I already gave my workers a 10% bump over the last two years, I can't afford to give them more" is a perfectly-understandable-if-flawed way of thinking.
Most managers have never seen this level of inflation in their career - the idea of a 10% across-the-board-raise seems insane to them. That doesn't mean the labor market isn't tight. It just means management hasn't fully gotten on board with the very large nominal pay increases that will be necessary to compete in the tight labor market. That's part of the reason it's so tight!
I think you're right that almost everybody instinctively thinks in nominal terms. Inflation adjusting is learned behavior that not enough people have learned.
And there's also the position of middle managers and small employers who look at many of their other costs rising, the ones they can't do anything about, and feel under immense pressure from either competitors or higher-ups to keep their prices down. As always, employee pay is the easiest and most obvious business cost to control. Not much else is negotiable, and the performance incentives in business almost all point in that direction.
I think this is spot on. Also, AFAICT, the idea of Annual Raises (largely intended for cost of living increases) disappeared in the Great Recession and never returned in the US. I was just informed that because we got a raise last year (about 2%) we probably won’t be getting one this year. I think that’s typical thinking in corporate HR these days.
Just like in previous skilled worker shortage “crisis”, couldn’t reluctance to offer higher wages be leading to higher vacancies?
When the data can't be reconciled with common sense then, often, the data is misleading, not capturing something important, or wrong. If we are basically at full employment (3.6% unemployment) and suffering very high inflation (9.1%) then wages should not be declining.
Perhaps we are not close to true full employment. Maybe, we are the precipice of a large economic decline: employees feel they have little bargaining power. Or maybe the inflation data is misleading.
Or maybe the job openings data is overstated. I don’t doubt that some specific categories are having trouble finding workers, but some of these have always drawn from a restricted labor pools - truck drivers have to have a CDL; (US) restaurant work requires willingness to work flexible hours for variable pay. In an age when a job opening can be posted with a few mouse clicks, we need measures of how serious firms are about recruiting: are they raising starting pay? (No) Paying bonuses? Offering hire-a-friend incentives? Offering relocation?
If the labor force really is tight, how is it possible for real wages to decline for a full 24 months in a row?
Because wingnuts have discovered they can get away with it, as they've discovered they can get away with keeping prices high on exactly those things that are most obvious and painful to people, because it allows them to feel vicariously gratified by the harm it causes, and in that way they'll be able to cultivate resentment and hate.
It's the same way every single Republican will respond in the most negative and harmful way they can to opinion poll questions like the President's approval rating, where Democrats will give a considered answer. They only consideration any Republican has is the harm they can get away with.
Real wages have little to do with labor market tightness. Your acting like cpi is a perfect capture of inflation, it is not.
Nominal wages are known to be "sticky" downwards, but wages are not sticky with respect to inflation. That is workers will bitterly resist actual cuts in nominal wages, but are less able or willing to get nominal raises because of inflation, even through unions. This is something that Keynes for example was well aware of. In the inflation of the 70's and 80's wages fell far short of keeping up with inflation even though there was much more unionization then. The idea that there was a "wage-price-spiral" then is a bizarre myth.
For various reasons workers have even less power than they did 50 years ago, and employers are probably more determined to squeeze wages. They also have more tools to do so, such as hiring people on contract, outsourcing and immigration (which was very low in the US up to the 70's).
Yes!
I think what you meant to say is:
Workers are loathe to take nominal cuts to wages even if real prices are lower, but are fine with nominal raises that are below real price increases.
Another one I suspect is that WFH is helping to keep wages down. People who transitioned to WFH received pay cuts or are hired at lower wages than office slaves.
"If the labor force really is tight, how is it possible for real wages to decline for a full 24 months in a row?"
The quit rate was near the high end of its range back in May. I wonder what it is today. But that suggests a tight labor force.
Seems like the labor force would be expanding at the low end. The number of jobs that pay less than median wage is expanding faster than higher paying jobs. Also, in terms of a weekly wage, older boomers might be working fewer hours.
Meanwhile, the Fed is threatening to create a recession, and workers are hunkering down and being quiet.
Once the temporary shocks that caused high inflation finish rolling through the economy, and once labor force participation gets back up, we'll finally see those median wages start to increase.
Stagflation called and wants its broken Phillips Curve back.
If you're still trying to apply the Phillips Curve, what if we were actually at NAIRU and inflation was driven exogenously?
You really believe that Econ 101 is the way labor and wages work in the US in 2022? Seriously, that is absurdly naïve. There is no sign that there is ANY connection between labor tightness and wage growth. Hasn’t been since at least 2009.