Are Real Wages Being Eroded by Inflation?

The answer depends on the deflator.

Figure 1: Average hourly earnings for private nonfarm payroll employment (production/non-supervisory workers) in 2020$/hr, deflated by CPI (black), by PCE deflator (red), and by Chained CPI (chartreuse). Chained CPI seasonally adjusted using X12/ARIMA X11. October observations calculated using nowcasted CPI, PCE deflator. NBER defined recession dates shaded gray. Source: BLS, BEA, Cleveland Fed, and author’s calculations.

In all cases, the real wage in October is higher than it was at the last NBER peak (2020M02). The relative gain in October is 2.9% for CPI deflated, 3.9 for PCE deflated, and 3.4% for Chained CPI (in September).

 

31 thoughts on “Are Real Wages Being Eroded by Inflation?”

  1. macroduck

    “The answer depends on the deflator.”

    Well, yeah, of course it does. We each have our own consumption basket and are each more or less prone to alter our spending depending on changes in price of various items in that basket. So we are all affected differently by price changes.

    Which is one reason that looking at a bunch of deflators is more informative than looking at just one.

  2. pgl

    Whether real wages are higher depends? For all three deflators, the answer is yes. Of course if we use the Princeton Steve deflator – nominal wages have not kept pace with bagel prices.

      1. pgl

        I got this link to this National Review nonsense from Kevin Drum who alas did not want to argue with the assertion that we did not need more infrastructure investment. Excuse me but we have been underinvesting in hard infrastructure for years. I was going to make my case via Googling for an intelligent discussion. First thing I found was this which goes well beyond what I had hoped for.

        It does not go into great detail but it does discuss the need for the climate change aspect of BBB (assuming Manchin has not killed that too) as well as much more:

        https://www.brookings.edu/wp-content/uploads/2016/08/global_20160818_sustainable_infrastructure.pdf

        More well reasoned discussions like this one would be most welcomed.

  4. Floxo

    Looks like both real median and real average wages are returning to trend, which is hopeful given the uptick since 2014. Labor force participation is still below trend so we may need for that to come back before a clear picture emerges. Neither series indicate wages are driving inflation, so it is likely inflation will moderate as global supply constraints ease.

  5. ltr

    https://www.cepr.net/with-rising-wages-and-record-job-openings-do-we-still-have-to-ask-if-the-minimum-wage-kills-jobs/

    November 5, 2021

    With Rising Wages and Record Job Openings, Do We Still Have to Ask if the Minimum Wage Kills Jobs?
    By DEAN BAKER

    The reopening of the economy, coupled with the healthy stimulus in the American Recovery Act, gives us a chance to see how businesses respond to higher wages at the bottom. So far, it looks like they are very willing to pay higher wages, if they are forced to do so. This should make us even more comfortable about raising the minimum wage.

    There has been a major national debate about raising the national minimum wage from its current level of $7.25 an hour in recent years. The last increase took effect in 2009. If we adjust for inflation over the last 12 years, the minimum wage has lost almost 30 percent of its purchasing power. If we wanted to restore the minimum wage just to its 2009 level of purchasing power, we would have to raise it to almost $9.50 an hour.

    Even a $9.50 minimum wage would leave it far below its 1968 peak level in terms of purchasing power. If the minimum wage today had the same purchasing power as it did in 1968, it would be roughly $12 an hour. Just in case people don’t remember, the unemployment rate averaged less than 4.0 percent in 1968….

  6. ltr

    https://cepr.net/nyt-spreads-fox-news-style-misinformation-on-family-leave-and-child-care/

    October 31, 2021

    New York Times Spreads Fox News Style Misinformation on Family Leave and Child Care
    By Dean Baker

    An article * discussing the future prospects for paid family leave dismissed the claim by Senator Kyrsten Gillibrand, that almost every country in the world has paid family leave, by saying that most of these countries actually do not expect women to work after they have had children.

    “Most of those countries can afford to offer paid leave because they do not actually expect women to work once they begin having children. Long leave plans help couples get started having children, but most countries then do not help with child care because they assume women will stay home.

    “The U.S. work force relies on women.”

    While it is true that many women in developing countries, with paid family leave, do not work outside the home, most wealthy countries with paid leave actually have higher rates of women’s labor force participation than the United States. According to data from the Organisation for Economic Co-operation and Development (OECD), 83.8 percent of women between the ages of 25 and 64 were in the labor force in Finland. In Germany, the figure was 84.4 percent, in France it was 79.3 percent. By comparison, in the United States it was just 77.2 percent, a figure that puts it well behind most other wealthy countries.

    In short, the story is the exact opposite of what the New York Times told readers. The U.S work force relies less on women than most of the wealthy countries that provide paid family leave.

    * https://www.nytimes.com/2021/10/31/us/politics/paid-family-leave.html

  7. ltr

    https://newsus.cgtn.com/news/2021-11-06/Global-food-prices-are-at-highest-level-in-45-years-14Xt7tDPFRe/index.html

    November 6, 2021

    Global food prices are at highest level in 45 years
    By Lisa Chiu

    Washington – Around the world it’s more expensive than ever to buy basic staples including meat, dairy, cereals, oils, and sugar.

    When adjusting for inflation, food prices are more expensive now than in the last 45 years, according to the United Nations Food and Agriculture Organization’s Food Price Index, which tracks monthly changes in the international prices of common food commodities.

    The inflation-adjusted food index averaged 132.5 points in October, up 30 points (29 percent), from a year ago.

    https://newsus.cgtn.com/news/2021-11-06/Global-food-prices-are-at-highest-level-in-45-years-14Xt7tDPFRe/img/c6813b16fd3e4679b0fbe55e651b5097/c6813b16fd3e4679b0fbe55e651b5097.png ….

    [ I have no sense of the seriousness of the matter. ]

  8. Moses Herzog

    Off-topic
    Isn’t this even worse than admitting you didn’t take the vaccine?? Or lying you took it when you didn’t (possibly causing other people’s deaths). I guess Lying would be the worst of the 3 actions.
    https://www.insider.com/aaron-rodgers-covid-19-ivermectin-hydroxychloroquine-2021-11

    Has a PR company advised him that telling people he took HCQ is going to “help” his image?? First of all I would prefer a vaccine to a “treatment”. Second of all I would tell them I’m taking something like Molnupiravir rather than garbage like HCQ. Does anyone read anymore?? Rodgers is just a bastard and a D___ and I wouldn’t buy ANY product or service he endorses.

    1. Baffling

      Rogers is a very intelligent individual. He is just not knowledgeable. An example of why we need to put some constraints on all the misinformation circulating in this world. Even intelligent people can get sucked into the echo chamber. But i would not be happy with rogers if i were a packer. He let the team down. And he was intentionally dishonest in his vaccine statement. He lied.

      2. Moses Herzog

        Disagree on “very intelligent individual”, but you have a right to your opinion. I would say it would be poetic justice if someone Rodgers cared for died from Covid-19, but narcissists generally only care about ONE person.

        1. Baffling

          You dont become a hall of fame quarterback if you lack intelligence. He can view and process information at a level few can-just watch him carve up defenses. But he has made some poor choices in where he gets his medical information. I mean he is naturally intelligent. But his source of knowledge is flawed

          1. pgl

            Tunnel vision. OK Rodgers understands the game of football. But that does not necessarily translate into understanding anything else. There are a lot of hall of famers who if asked to opine on anything but their game respond “DUH FOOTBALL”.

            When I listened to his interview, I fully expected him to put on a MAGA hat. Brady has one and he is the GOAT.

  9. SecondLook

    Is there a data set that shows wage increases by income cohorts?

    One would hope, although I have yet to find it. The old great labor economists must be rolling in their graves…

    1. pgl

      Menzie can correct me if this is inaccurate but I think Census reports such data but not on a monthly basis.

        2. Moses Herzog

          I think Menzie must have discussed this before because this QCEW abbreviation is really ringing bells in my head:
          https://www.bls.gov/cew/

          The obvious complaint with that data set might be that it doesn’t properly represent the rural situation?? I guess you’d have to look at those counties.

        3. SecondLook

          Thanks for the data source.
          It does seem to support the thesis that real wage gains are unevenly distributed. And that the lowest quartile does appear to be losing purchasing power, and has been for some years.
          Ah well, no great surprise on the sociology side of things…

    2. ltr

      For now, lower wage workers are gaining relatively larger percentage gains in wages:

      https://fred.stlouisfed.org/graph/?g=IBTh

      January 4, 2020

      Average Hourly Earnings of All Private Workers and Production & Nonsupervisory Workers, * 2020

      * Production and nonsupervisory workers accounting for approximately four-fifths of the total employment on private nonfarm payrolls

      (Percent change)

      1. Moses Herzog

        He’s only saying this to protect himself from the type lawsuits that Alex Jones has lost. He’s presenting a “macho” image for the right-wing illiterates to consume. Watch his character on the old “NewsRadio” shows. He’s still playing that same Joe Garrelli role in his podcast and streams.

        1. Baffling

          I consider rogan a fraud. I dont think he believes much of what he says. Just cashing in on the stoopidity in the world.

          1. pgl

            Rogan has lots of competitors in this market. Then again the market for advising stooopid people is doing well because we must have a lot of stooopid people including a few celebrated NFL QBs.

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