The Administration has been lauding the acceleration in compensation growth. Newly revised figures indicate that the rejoicing was premature, as Q2 real compensation growth was revised downward.
As noted by Haver:
“Compensation per hour, however, was revised sharply with the 3Q estimate taken down one percentage point to 2.6% growth. Combined with a huge downward revision to 2Q growth to -1.2% from +6.6% (not a typo) it lowered the y/y change to 4.3% which is on a par with the growth during the last several years.”
The new data paints a very different picture than that displayed three monthsago. Now it is unclear that CEA Chairman Lazear could repeat what he said back in September:
“…2006 has seen significant increases in nominal wages above the levels of past years. Indeed, the nominal wage growth associated with increases in productivity has virtually offset the increase in prices associated with the unanticipated and extraordinary energy cost increases that have occurred since June of 2005. In the first two quarters of 2006, real hourly compensation grew more than 6 percent at an annual rate. If this trend continues, 2006 will be a period during which real wage gains begin to catch up with earlier gains in productivity, despite large price hikes in the energy sector.”
Figure 1 shows the updated picture.
Figure 1: Log output per hour in the nonfarm business sector (blue) and real compensation per hour in the nonfarm business sector deflated using NFB deflator (green), using CPI-U-RS to end-2005, and CPI-U thereafter, as reported by BLS (red), 1992=100. Source: BLS via FRED, and author’s calculations.
As this figure demonstrates, there is little convergence in the real output per hour and real compensation, even defined using the nonfarm business sector implicit deflator. Obviously, using the research CPI series, real compensation is even lower (and, as discussed this post, using the Employment Cost Index, which would exclude bonuses, would show yet less evidence of catch-up).
Figure 2 shows a detail of the revisions to 2006Q2 data for both compensation series. The September release indicate a closing of the gap. The December 5 release indicates that the 2006Q2 jump was just a spike.
Figure 2: Log output per hour in the nonfarm business sector (blue) and real compensation per hour in the nonfarm business sector deflated using NFB deflator (green) [black circles for Sep. release], using CPI-U-RS to end-2005, and CPI-U thereafter, as reported by BLS (red) [teal boxes for Sep. release], 1992=100. Source: BLS via FRED, and author’s calculations.
By the way, if one excludes the effects of bonuses and stock options, it is likely that compensation trends would look worse. Figure 3 presents the log nominal compensation per hour, and log nominal employment cost index, both normalized to zero in 2001Q1.
Figure 3: Log nominal compensation per hour in the nonfarm business sector (blue) and log nominal Employment Cost Index (ECI), NAICS definition, 2001Q1=0. Source: BLS via FRED, and author’s calculations.
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