Real Wages Are Rising More evidence that faster growth is flowing to workers.
https://www.wsj.com/articles/real-wages-are-rising-1536359667
Most headlines from Friday’s August jobs report concerned the 2.9% increase in wages over the last 12 months, the healthiest raise in some time. That figure was probably overstated due to a weak August 2017 falling off the 12-month comparison, but other data are showing that wages after inflation are finally rising as you’d expect in a tight labor market.
The August numbers reinforced the tightening trend. The unemployment rate stayed at 3.9%, and the rate for black Americans fell to a record low 6.3%; a year earlier the rate for blacks was 7.6%. The number of employed Americans fell, but much of that is explained by students returning to school. The same applies to the August dip in the labor participation rate. Overall the August snapshot shows a labor market in excellent shape, with nearly everyone who wants a job able to get one.
Which brings us to the wages debate. The economists who presided over the historically slow wage growth of the Obama years have been arguing that the Trump-era economic growth spurt is no big deal because wages after inflation aren’t rising. Their evidence is the average hourly earning increase, which at 2.7% in July wasn’t much above recent inflation that through July was 2.9%.
Part of that inflation burst has been the recovery in oil prices from the plunge of 2015, thanks in part to faster global economic growth. We’d worry more if oil prices hadn’t flattened out in recent weeks. With the Federal Reserve tightening monetary policy and the dollar strong, a supply shock would be needed to cause another oil spike.
Other measures of wages also portend a faster pace of growth. The Atlanta Fed’s “wage tracker” showed a 3.2% increase year-over-year for June. Most encouraging is this week’s report of a bounce in labor productivity growth in the second quarter to 2.9%. That’s the best jump since the first quarter of 2015, after which productivity suffered a two-year slump as the economic expansion lost steam. Higher productivity is essential for sustained wage growth.
Meanwhile, the White House Council of Economic Advisers weighed in this week with a useful study that adds further evidence that real wages are rising. Economist Kevin Hassett’s crew examined the data and pointed out that average-hourly wages don’t include bonuses and employee benefits, which have been increasing smartly.
They also looked at the demographic impact of more experienced (and higher paid) baby boomers leaving the workforce as younger, lower-paid workers join. The large number of baby-boom retirees may have caused the overall wage increase to be understated in recent years even as most current workers see gains.
Adding it all up, Mr. Hassett’s team came up with an estimate of a real wage increase after taxes over the last year of 1.4%. that would be 3.4% in nominal terms. With capital spending booming at a 10% growth pace, labor productivity should continue to increase and that 1.4% real wage growth would also rise. More investment after tax reform and deregulation means faster economic growth and faster productivity gains that become higher wages.
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