The Atlanta Fed's macroblog provides commentary on economic topics including monetary policy, macroeconomic developments, financial issues and Southeast regional trends.
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February 26, 2015
Are Shifts in Industry Composition Holding Back Wage Growth?
The last payroll employment report from the U.S. Bureau of Labor Statistics (BLS) included some relatively good news on wages. Private average hourly earnings rose an estimated 12 cents in January, the largest increase since June 2007. Even so, earnings were up only 2.2 percent over the last year versus average growth of 3.4 percent in 2007.
What accounts for the sluggish growth in average earnings? The average hourly earnings data for all workers is essentially the sum of the average earnings per hour within an industry weighted by that industry's share of employment. In this piece, Ed Lazear argues that a shift of the U.S. economy away from some high-paying industries to lower-paying industries may have contributed to dampened wage growth. Lazear specifically calls out the reduced share of employment in the relatively high-paying finance industry, at hospitals, and in the information sector as potential culprits. A shift in employment away from relatively high-wage jobs will put downward pressure on the growth in average wages.
To get some idea of the effect of industry composition on wages, I took the 2014 calendar year average wage for each industry group at the two-digit NAICS level and multiplied it by the share of employment in that industry in 2014 (admittedly, two-digit NAICS level of disaggregation is very coarse and masks a lot of potential shifts in job-types within industries). Summing across the industries gives an estimate of total average private hourly earnings in 2014. I then repeated the exercise, but using the 2007 industry shares of employment instead (see the chart).
Would average wages have been higher if we had the same mix of employment across industries as we had before the recession? The answer seems to be yes, but not much higher. If nothing had changed in the economy's industry employment mix since 2007, then average wages would have been about 12 cents higher.
This translates into a 16.8 percent increase in nominal wages between 2007 and 2014 versus a 16.2 percent increase if the actual industry employment shares where used, because the decline in the shares of employment in the relatively high paying industries Lazear cites has not been very large, and some higher-paying industries have seen growth. Moreover, some industries with below-average wages, such as retail trade, have experienced a decline in their share of employment as well.
February 23, 2015
Are Oil Prices "Passing Through"?
In a July 2013 macroblog post, we discussed a couple of questions we had posed to our panel of Southeast businesses to try and gauge how they respond to changes in commodity prices. At the time, we were struck by how differently firms tend to react to commodity price decreases versus increases. When materials costs jumped, respondents said they were likely to pass them on to their customers in the form of price increases. However, when raw materials prices fell, the modal response was to increase profit margins.
Now, what firms say they would do and what the market will allow aren't necessarily the same thing. But since mid-November, oil prices have plummeted by roughly 30 percent. And, as the charts below reveal, our panelists have reported sharply lower unit cost observations and much more favorable margin positions over the past three months...coincidence?
February 20, 2015
Business as Usual?
Each month, we ask a large panel of firms to compare their current sales with "normal times." In our February survey, the firms in our panel reported their sales were approaching normal. Indeed, on average, larger firms (those with 100 or more employees) tell us sales levels this month were right at normal. But smaller firms, although improving, are still lagging their larger counterparts (see the chart).
These qualitative assessments suggest a continuation of the trend we've seen in our quarterly quantitative data (these data are compiled at the end of each quarter). In December, our panel of firms reported sales levels about 2.7 percent below normal—virtually identical to the Congressional Budget Office's estimate of the output gap. Here, too, our survey data show that on average, sales of the larger firms in our panel were essentially back to normal, but smaller firms were still reporting ample slack (see the chart).
Our next quantitative assessment of slack in U.S. business is due for release on March 20.
February 17, 2015
What's (Not) Up with Wage Growth?
In recent months, there's been plenty of discussion of the surprisingly sluggish growth in hourly wages. It certainly has the attention of our boss, Atlanta Fed President Dennis Lockhart, who in a speech on February 6 noted that
The behavior of wages and prices, in contrast, remains less encouraging, and, frankly, somewhat puzzling in light of recent growth and jobs numbers.
So what's up—or not up—with wage growth? Using samples of matched worker-level wage data from the U.S. Bureau of Labor Statistics' Current Population Survey, chart 1 plots the annual time series of median 12-month growth rates in per-hour wages. Like most wage growth measures, this chart indicates that wage growth has been gradually increasing since the end of the recession, but growth remains quite a bit lower than before the recession began. Prior to the recession, the median growth rate of wages was around 4 percent a year. This growth rate declined to 1.7 percent in 2010 (as the incidence of wage freezes become much more prevalent, as shown in this research) and increased to 2.5 percent in 2014. For comparison, the chart also shows the annual growth in the Employment Cost Index's measure of wages. The trends in the two measures are broadly similar.
A previous macroblog post discussed details about the method of constructing the median wage growth data.
It's well known that wage growth varies across job characteristics such as occupation, industry, and hours worked as well as across worker characteristics such as education and age. For example, younger workers tend to experience higher hourly wage growth than older workers (even though their hourly wage tends to be lower), and part-time workers tend to have lower wage growth than full-time workers. We thought it might be interesting to look at wage growth for various job and worker characteristics. Are there any bright spots where the median growth in wages has approached prerecession levels?
The answer seems to be no, at least not for the set of characteristics we examined.
The following charts plot the annual time series of the median 12-month growth rate in the wages of workers with a given characteristic (occupation, age, etc.). Chart 2 depicts workers across three broad occupation groups: general-services jobs, production-oriented occupations discussed in our last macroblog post, and a category encompassing managerial, professional, and technical occupations (labeled “professional” in the chart).
Chart 3 shows the median year-over-year wage growth of workers employed in goods-producing versus service-producing industries.
Chart 4 shows the median growth in the wages of individuals working full-time versus those working part-time.
Chart 5 shows the median wage growth of workers with less than an associate degree and those with at least an associate degree.
Chart 6 shows the median growth in the wages of individuals between 16 and 35 years of age, those 36 to 55 years of age, and those over 55 years of age.
We can sum up our findings by saying that median wage growth is higher for some characteristics than others, and the recent trend in wage growth is generally positive across characteristics. But none of the characteristic-specific median growth rates we looked at are close to returning to prerecession levels. Lower-than-normal wage growth appears to be a very widespread feature of the labor market since the end of the recession.
- Are Shifts in Industry Composition Holding Back Wage Growth?
- Are Oil Prices "Passing Through"?
- Business as Usual?
- What's (Not) Up with Wage Growth?
- Are We Becoming a Part-Time Economy?
- Contrasting the Financing Needs of Different Types of Firms: Evidence From a New Small Business Survey
- Gauging Inflation Expectations with Surveys, Part 3: Do Firms Know What They Don’t Know?
- Gauging Inflation Expectations with Surveys, Part 2: The Question You Ask MattersA Lot
- Gauging Inflation Expectations with Surveys, Part 1: The Perspective of Firms
- Chances of Finding Full-Time Employment Have Improved
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