Lots of new numbers today. By coincidence, the PCE figures were released the same day as the latest quarterly reading of the Employment Cost Index. According to the ECI, real wages were up at an annualized rate of 1.3% in Q2 but still well below their pre-pandemic level:
In most measures of wages, we see a big spike in 2020 and then a gradual decrease. However, much of this is due to composition effects. That is, the composition of the labor force changed because the lowest-paid workers got laid off first, artificially raising the average wage of everyone left over.
ECI is an important measure because it adjusts for these composition effects. That makes it probably the most accurate measure of wages we have. As the chart shows, real wages are still well below their pre-pandemic level but have grown at an annualized rate of 1.0% for the past three quarters.
The comparison of the growth rate of this wage measure with inflation tells the real story the relation of wages to inflation.
https://fred.stlouisfed.org/graph/?g=17p2i
Up until the pandemic, wage growth was often a little faster than inflation, yielding small real-wage gains without setting off high inflation. But inflation kicked up in early 2021 without any real increase in wage growth, and while wage growth increased a little in inflation, the rate was well below inflation. Other wage measures say the same thing, taking account of the compositional effects. Clearly inflation has driven the small increase in wages, not the other way around.
It is remarkable how many economists, including the directors of the Fed, cling to the absurd claim that wage increases are responsible for inflation. Evidence that other factors are responsible is simply ignored.
PS. Kevin and a few economists have been right, but most have been wrong, as they usually are about inflation.
Given how much of the inflation adjustment is due to the statistical mirage of shelter/housing costs and to a lesser extent vehicle purchases.....its not clear how useful inflation adjustments are when looking at wages.
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My wages are well above what they were in 2019. Inflation is irrelevant. Really?
As the system currently works and is rationalized, wages will not ever change that dramatically, and as AI becomes more sophisticated, transfer payments will have to increase, but it doesn't have to be this way, common sense restrictions against too great power distinctions can change the tide, and elite deviance does not have to be a given. Having said that, liberty and free exchange cannot be sacrificed by any freedom loving people, you secure that freedom not by communistic utopian dreams but by improvising methods to expose and criminalize corruption, from all quarters.