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December 13, 2005

Are Workers Losing Ground?

Steve Reardon thinks so:

This is another problem for the Bush Administration. Since the start of 2005 the real wage rate has been declining and in the last two months the real wage has dipped below its November 2001 level. In other words, the real wage (the hourly wage put out by the BLS adjusted for inflation) is lower now than it was 4 years ago.

Here, essentially, is Steve's picture:

Real_average_hourly_earnings_short_serie

Gotta admit, that doesn't look so great.  But here is the same series, taking a somewhat longer view:

Real_average_hourly_earnings_long_series
By this measure of economic performance, every president since Gerald Ford ends up looking pretty bad, the exception being the Clinton administration -- but only during the second term.  (In the first four years of the Clinton administration, real average weekly earnings rose by about 4 cents.  In the first four years of the current administration, they increased by about 17 cents.)

What's going on here?  I'd argue the problem is that hourly wages or earnings are an inadequate measure of labor compensation, primarily because they exclude nonwage forms of compensation -- health care benefits, employers' share of social security contributions, and the like.  These forms of compensation are an increasingly important part of what workers receive from employers in exchange for the sweat of their brows.  Here's the record on total real compensation (in the nonfarm business sector):

Real_compensation

A much different picture, and, just for yuks, here is how it breaks down by "presidential performance":

Table
So, there you have it.  On an annual basis, the pace of returns to labor during the current administration has been the best since -- Jerry Ford!

(Note: You can find the definitions of -- and distinctions between -- wages and salaries, earnings, and total compensation in the glossary provided by the Bureau of Labor Statistics.  If anyone is interested, here is the data presented above: Download real_average_hourly_earnings.ppt )

UPDATE: Kash reminds me of this excellent post, which breaks down the differences across various labor compensation measures in detail.  A must read.

UPDATE II: Steve responds, and quite correctly notes his main point was that, quite apart from whether the wage facts are the right ones to think about, they will likely rebound the detriment of the president.  Alas, he's probably right.

December 13, 2005 in Labor Markets | Permalink

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Listed below are links to blogs that reference Are Workers Losing Ground?:

» Real Wage vs. Real Compensation from Deinonychus antirrhopus
In the comments to this post several commenters raised the issue of real compensation. That is, medical benefits and other benefits that are in the workers pay (from the employers perspective) are taking up the difference and hence real compensation is... [Read More]

Tracked on Dec 14, 2005 12:04:57 AM

» Real Wage vs. Real Compensation from Deinonychus antirrhopus
In the comments to this post several commenters raised the issue of real compensation. That is, medical benefits and other benefits that are in the workers pay (from the employers perspective) are taking up the difference and hence real compensation is... [Read More]

Tracked on Dec 18, 2005 4:14:14 PM

» Are Workers' Wages and Salaries Stagnating? from Brad DeLong's Website
Macroblog writes: Are Workers Losing Ground? : Steve Reardon thinks so: "This is another problem for the Bush Administration. Since the start of 2005 the real wage rate has been declining and in the last two months the real wage has dipped below its No... [Read More]

Tracked on Dec 19, 2005 3:20:13 PM

» Declining real wages from Econbrowser
How concerned should we be about the downward trend in real wages? [Read More]

Tracked on Dec 19, 2005 11:51:02 PM

» Real Wage vs. Real Compensation from Deinonychus antirrhopus
In the comments to this post several commenters raised the issue of real compensation. That is, medical benefits and other benefits that are in the workers pay (from the employers perspective) are taking up the difference and hence real compensation is... [Read More]

Tracked on Dec 20, 2005 12:58:55 AM

Comments

The decline in real wages would be even more dramatic if adjusted to the real inflation rate which is the inflation in the money stock. That would take into account all the items that don't go into the core CPI.

Posted by: Frank | December 13, 2005 at 09:21 AM

Using total compensation is just as troublesome.
People can't eat their health care insurance. And the increases in fringe benefits aren't real: Coverage costs more but the quality is declining.
The problem with all these figures is they are just averages. We know the folk at the top are getting bigger bonuses, stock options, better retirement packages. That boosts average income and average compensation.
But the folk at the bottom are facing lower real wages, deteriorating health care coverage and erosion of defined benefit pensions.
If it weren't for mad money from home equity loans, middle-class families would be on a serious buyers' strike. Wait for it to happen next year.
But I guess what's good for Gucci is good for the nation.

Posted by: fred c. dobbs | December 13, 2005 at 12:00 PM

The workers I know are losing ground. Do you even know any workers?

Posted by: Mark | December 13, 2005 at 12:09 PM

It would be nice to see medians rather than means for both wages and compensation. Or at least some standard deviation figures.

Posted by: Alan | December 13, 2005 at 12:12 PM

David: Good post. A while back I was curious about the other differences (i.e. other than including vs. excluding benefits) between the various measures of earnings a while back. After spending a little time researching the question, I put up this post, detailing the differences between the different series:

http://angrybear.blogspot.com/2005/06/are-earnings-rising-or-stagnant.html

You may find it interesting.

Best,
Kash

Posted by: Kash Mansori | December 13, 2005 at 03:29 PM

The question is whether anyone really believes healthcare inflation is only 4.9%. A lot more inflation and a lot less quality improvements is much more believable. Now if you would like to make the case that they want to spend more on healthcare rather than just having to spend more, it would be more credible.

Posted by: Lord | December 13, 2005 at 03:49 PM

David: How does this stellar growth in real compensation over the past 10 years compare with the truly historic gains we've been having in productivity? Shouldn't we expect real compensation to have risen even more than it did?

It seems to me this is an issue of fairness as much as economics. Should firms take all of the benefits of the productivity revolution and leave workers with just crumbs?
At least during the pathetic Bush I administration, productivity gains were just as anemic as compensation gains. Everyone shared in the pain.
Not so today.

Posted by: fred c. dobbs | December 13, 2005 at 03:55 PM

You also have to consider many states have minimum wages higher than federal standards. The real losers are worekers in states that do not have minimum wages set above federal standards...

Posted by: donna | December 13, 2005 at 10:20 PM

Most of the comments here essentially suggest that we ought to be most worried about the distribution of labor returns, and less so the average. I think that is a fair comment, but I was merely reacting to other comments (and Steve's is representative of many) that in fact use aggregate s to judge the performance of the US economy. My point was a simple one -- to the extent that we use averages as a guide to economic performance, we should at least use the right ones. Despite fred's protestation, I think total compensation is the right one, at least to the extent that fringes like health care coverage roughtly match the expenditure that individuals would make of their own accord. (And if that is not true, then we ought to be thinking in terms of reforms that decouple the tax system and the labor market.)

As to the question of whether I know any workers the answer is, uh, yeah, that would be me.

Posted by: Dave Altig | December 13, 2005 at 10:37 PM

Congratulations on recognizing (sort of) that the W Bush record beats the performance of the Clinton Presidency at the same point in the business cycle. That's seems to be a deep dark secret to the folks at a lot of economics blogs.

Posted by: Patrick R. Sullivan | December 14, 2005 at 03:22 PM

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