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Wage growth has been negative over the past year

Since we have new inflation numbers today, we can also calculate real earnings over the past year. Here they are:

For all workers, hourly earnings are down 1.3% compared to a year ago. For blue-collar workers, hourly earnings are down 0.5%.

Needless to say, this is not so good. At the same time, it also gives the lie to claims of a worker shortage. If there were truly a shortage, wages would be going up, not down.

15 thoughts on “Wage growth has been negative over the past year

  1. golack

    The wage data also depends on the job mix. Service industry jobs grew this year, ones the pay lower than average, so the average value drops.

    As for worker shortage--it's more like it's harder to find people willing to work for low wages and no benefits. Not sure how the "gig economy" affects numbers though....but that is not too large, so shouldn't have huge effect.

  2. jte21

    I think there *is* a worker shortage, but I also think corporate America has decided to play a massive game of chicken with the labor market, seeing who will blink first. Businesses are betting people will eventually come crawling back to their minimum-wage jobs once they get desperate enough, but I'm not so sure.

    1. Spadesofgrey

      Or the opposite. Wages are surging and the government will have to upwardly revise. This is the only real clear reason inflation has accelerated in the US compared to Europe. Paying extra for workers is costly.

    2. JonF311

      How many jobs pay only minimum wage, and to what extent are those jobs to be found at corporate workplaces as opposed to small family owned businesses? Even Walmart and McDonalds have been paying above minimum wage for a while now.

    3. PaulDavisThe1st

      This. Most every store I go into (which is not a lot, due to, you know, COVID-19) is chronically understaffed. Maybe they really can't get people at any wage level, but I'm leaning to the playing chicken (aka "skimpflation") direction.

  3. Jasper_in_Boston

    At the same time, it also gives the lie to claims of a worker shortage.

    I would think it also weakens inflationary pressures. At some point households are going to have to tighten belts.

  4. Spadesofgrey

    Then non-pce core spending should drop. If it doesn't, then something is wrong.

    The US's inflation rate compared to Europe's appears out of whack. BLS may start getting attacked for suspect numbers.

  5. jdubs

    Lots of composition effects going on here. If you ignore the composition effects, you end up with a story showing that the job market & wages were amazing back in the spring of 2020, fell apart in the summer and have never recovered.

  6. KenSchulz

    Putting this together with the price-index data, it is clear that the widespread price increases of the last few months have not been driven by a wage-price spiral. As I have said before, the economy will adjust to increases in the general price level, unless a positive-feedback loop is the driving factor. It looks like the most-commonly cited positive-feedback mechanism, wage-price, is not operating. ‘Expectations’ are another often-suggested positive feedback - people rush to buy before prices go up further, creating excess demand. It seems rather that the problem currently is inadequacy of supply. That should be the easiest to fix - through substitution, adding hours/shifts to production systems and expediting delivery. The accepted explanation is that it is delivery of intermediate and finished goods that is the problem, and adding hours and shifts at the ports was supposed to fix it. So we are hearing about a shortage of truck drivers to move goods out of the ports. But there are reports that drivers are waiting much longer at the ports. What we really need, then, is for the drivers to be on the road driving, not waiting to be loaded or unloaded.

  7. Brett

    The devil is in the details. The lower-end service sector jobs have probably still had major real wage increases, but the overall average still went down.

  8. rational thought

    OK.

    It does look like Kevin has accepted the criticism yesterday of his ridiculous post on a shortage of truckdrivers and looking back to 1995 to real wage growth. And now looking at just recent wage trends .

    However , there is still a conceptual issue with this looking at such a huge category like " workers ". The cost of labor represents the majority of the prices of everything in the economy in total . The economy itself is over half cost of labor of various types.

    And speaking of a " shortage " of an economic component which is over half the total is somewhat ridiculous. An economic shortage is relative to other goods and services - there is no real meaning otherwise. And , since measuring real wages adjusted for overall prices ( of which labor costs represent over half) , you really are more just comparing the relative market values of labor vs every other input ( which in total are less than half ).

    You cannot have a " shortage " of everything. And " shortage " in economic terms means there is " surplus " of something else and net shortages should balance net surpluses.

    Makes more sense to talk about shortage and surplus re the smaller component. So if no labor shortage or labor surplus ( as real wages dropping back down) , really more like there was a shortage of non labor inputs.

    And note that looking at recent trends of real wages does NOT tell you if there is a current shortage or surplus. It indicates the status as of the time of those changes. Could be that , at the end of the series , the price or wage has readjusted and found its market equilibrium.

    And imperfect markets to tend to overshoot their true market price, especially wages which tend to be sticky .

    At the beginning of the pandemic, there was a relative labor shortage, or non labor surplus, for obvious reasons as covid and restrictions reduced labor . So , over time, the market price of labor adjusted up . But , as you would expect, wages overshot their market level, especially as conditions eased, and now they are readjusting downward again.

    Really nothing here that should not be expected.

    And I would emphasize that having less of something, like say truck drivers, than you had in the past , does not necessarily create a shortage in economic terms . If the market was able to immediately adjust prices , so demand and supply immediately balanced ( at higher prices but lower total amount ) that is not a shortage at all.

    For labor, if something caused labor supply to go down, and employees, chasing fewer workers , have to pay higher wages to attract them , and some employers go out of business ( which is part of the adjustment) , THAT is not a labor shortage. Even if employers whine they have to pay higher wages .

    If there is a true labor shortage, it means there is no one willing to work at the current wages being offered by employers . So am employer needing new workers has to offer higher wages than other employers to steal employees. So then those other employers have to increase wages too to compete . Which is exactly what is supposed to happen to end the shortage.

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