Apparently the latest hotness is to air minor differences with people you normally agree with. I'm in! Noah Smith argues today that our current economy is the best in a very long time, and overall I think he's right. But there's one thing I think he's wrong about: wage growth.
Unfortunately, it's been pretty lousy over the past three years:
This is wage growth for nonsupervisory workers, but it doesn't really matter. Every measure of wages shows roughly the same thing.
This is all bound up with inflation. Wages have kept up with inflation over the past three years, so there's been no drop in living standards. But there's been virtually no gain, either. This kind of sluggish real wage growth is great for the Fed, since it means there's little chance of a persistent wage-price spiral, but not so good for workers, who are just treading water.
Now, some of this is a bit of an artifact, since a three-year span includes the big drop of early 2022 but not the corresponding big spike of early 2020. Still, even accounting for that doesn't change things much. There just hasn't been a lot of wage growth lately, and that's probably one factor in the overall sour feelings about the economy.¹
¹But not a big factor. As I've pointed out repeatedly, this is mostly a purely partisan effect: only Republicans think the economy is horrible, a view that took hold at nearly the instant Joe Biden won the election. Since then, both Fox News and Donald Trump have hammered away at this, and Republicans believe them.
Relatively stagnant wages in a society does not mean a given person does not advance, and therefore make more money. I don't know if there's anyway good data on income growth at an individual level.
Exactly, as golack implies, "wage growth" is a misleading term. Here's why. When an individual thinks of their own "wage growth," they're thinking of advancing their career, getting promotions, and thereby making more money. But the "wage growth" Kevin charts here is not that. It's the ratio of ALL wages to inflation, counting everyone's wages. And as long as wages keep up with inflation -- that has NOTHING to do with advancing one's career -- that's GOOD. There is no reason to expect that wages defined in this way should increase faster than inflation; in fact, that CAN'T HAPPEN because if it did, it would increase inflation! Why? Because labor costs are absolutely by far the BIGGEST component of inflation! It means that a ratio of wage growth to inflation that stays right around 1 is not only OK, but it's almost impossible for it NOT to be right there unless the economy has completely TANKED.
As I keep saying, after the shock of covid and the resultant inflation, the US is basically back on the path of the long expansion period that has been going on since around 2010:
https://fred.stlouisfed.org/graph/?g=1vq0K
Many macroeconomic indicators show this, including real wages. Wages are basically doing what they have been since the early 90's, that is growing slightly faster than inflation. This expansion period has been longer but slower than many in the past.
This expansion phase will likely continue until the next financial collapse, if not another pandemic or other catastrophe. Which party controls the Presidency and Congress has little to do with the overall trend on the scale of a few years - saying that the Biden economy is better than or worse than Trump's is basically meaningless babble. Over the long run - several Presidental administrations - government policy does make differences, and in the future there will be major issues, such as conversion to non-fossil fuel, which are very important.
Policy about regulation, which usually gets little attention compared to the fatuous* comparisons of Trump vs. Biden economies, may have a major influence on when the next financial collapse happens, which is when the expansion will probably end.
Actions during the pandemic were important - the downturn would surely have been much worse without the massive stimulus.
*the comparisons are merely fatuous in the MSM, while most of the claims about the economy by Trump and Republicans are flat-out lies.
I thought that 2022-2026 was anticipated to be peak boomer retirement years? This massive turnover in the age of the workforce along with the inaccuracy of monthly shelter related inflation may be causing this statistic to present a wildly misleading picture for a few years.
I don't like moving averages because they can get whipsawed by sharp changes when those changes fall off the moving average. You allude to this in your last paragraph.
It also appears you use the BLS numbers, which can be distorted by composition effects. So you'd have us believe that wages rose rapidly around 2010 while we were still suffering from the effects of the worst recession in 80 years? Also, big increases during the COVID pandemic? You really need to do a reality check before you publish stuff.
Dude, you haven't heard of "Snap Back"? Your Orange Messiah is claiming that's entirely the cause of the increase in jobs and pay since 2021. And, yes, it certainly was at first. Check your copy of Weekly Topics from Mar-A-Lardo to be sure it's up-to-date.
When the total employment line passed the previous high in 2022, "Snap Back" had run its course. Further growth, especially in defiance of the headwinds of the Fed's aggressive tightening, means that growth is genuine.
The Snap Back was even stronger, though less rapid, after the Great Recession. But again, once total employment had exceeded the previous high in late 2007, the rest of Obama's term was real, honest-to-goodness growth.
I follow several macroeconomics experts and all of them have been reporting that wages have been outpacing inflation for well over a year with the biggest gains being for low income workers. Not sure how Kevin defines “sluggish” but given how high inflation rose I think it’s astounding that wages outpaced it. Even more impressive is that low income workers have gained the most.
I trust the analysis of people who have been studying macroeconomics for years.
https://cepr.net/my-six-favorite-untruths-about-the-biden-harris-economy/
The average wages of those still employed probably did go up early in the pandemic. Restaurants, bars, theaters, etc were closed and the people who worked in them were unemployed. Highly paid people like doctors or CEOs were likely still employed. The data probably measures earnings of those employed, not of all those who would like to be employed.
I don't know why Kevin didn't think of this. If average wages are fairly flat, it may because there is a shortage of skilled workers (especially younger skilled workers) so not many higher paid workers are finding new jobs, some are retiring, but a healthy jobs market means lower paid workers are. So averages fall. So a flat average may actually be signalling rising wages.
Distribution matters. Averages hide an awful lot of information.
And how can even republicans have a negative view of the current stock market. They are nuts.
Gotta love that 69% (nice) of Republicans think the stock market is doing badly. I bet they've sold off all their stock mutual fund holdings in their IRAs right?