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July 20, 2006
The Chairman Speaks: How Should We Measure Labor Compensation?
Whenever a Fed Chairman testifies before Congress, the question and answer part of the session is often the most interesting. This time around was no different, and here is one of the exchanges that caught my attention:
[Senator Robert] BENNETT: ... Chairman Bernanke, we've had a lot of conversation about wage growth compared to inflation. I find it hard to get a single statistic on this. If you look at the narrow measure of labor compensation that's labeled average hourly earnings, which does not include any benefits, then you get one answer. If you look at the more comprehensive measures of labor compensation, such as those that come from the Bureau of Labor Statistics productivity statistics and the Employment Cost Index from their National Compensation Survey, you get another answer...
BERNANKE: ... depending on what sector you're looking at, you might choose one or the other. For purposes of looking at household income -- that's how much income consumers have to spend -- you would probably look at the nonfarm business compensation...
BENNETT: When I was an employer, I learned very quickly that you cannot look at your labor costs in terms of what shows up on the W-2. Your labor costs are based on the entire compensation package, which includes all of the benefits.
Yes! If I had my way, appeals to the BLS average hourly earnings series would be banished from commentary about wages and the fortunes of the workers -- unless the the commentator explains why that measure is a truer measure of labor compensation than those that include in-kind payments to employees (that is, benefits).
I've linked to this before, but if you are relatively new to this blog, or this issue, check out this article by Joseph Meisenheimer II for a nice overview of the differences between various measures of labor compensation.
UPDATE: My campaign is off to a bad start.
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