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Are we approaching labor market equilibrium?
After four years in which pay failed to keep pace with price increases, wages for most American workers have begun rising significantly faster than inflation.
With energy prices now sharply lower than a few months ago and the improving job market forcing employers to offer higher raises, the buying power of American workers is now rising at the fastest rate since the economic boom of the late 1990s.
The average hourly wage for workers below management level — everyone from school bus drivers to stockbrokers — rose 2.8 percent from October 2005 to October of this year, after being adjusted for inflation, according to the Bureau of Labor Statistics. Only a year ago, it was falling by 1.5 percent.
Productivity has been rising for years, so it is comforting to see wages follow suit. Every now and then the predictions of economic theory are correct.
Here is the full story. The timing of this news could not be better, if you get my drift...
Posted by Tyler Cowen on December 8, 2006 at 07:33 AM in Data Source | Permalink
Comments
Aren't these wage data to be treated with extreme caution? Even the BLS admits this series is seriously flawed. http://www.bls.gov/ces/cesww.htm. Gene Epstein devotes several chapters to it in his book.
That's not meant to put a damper on the above news, just that I've been convinced to be skeptical of any news using this series.
Posted by: Mike at Dec 8, 2006 8:31:40 AM
Don't forget there is more then one economic theory involved in this calculation of real wages.
For example shifts in the terms of trade just might be playing a role.
Posted by: spencer at Dec 8, 2006 9:00:53 AM
It will take a heck of a lot more than one quarter or one year of good wage growth for labor's share of income to move back to it's previous level. While it's good that wages are rising, it's a bit premature to say it's now obvious that the prediction that labor's share of income is fixed in the long run is still true.
also, one quarter or year of good growth doesn't really solve the larger issue the democrats point to -- inequality.
Posted by: Ian D-B at Dec 8, 2006 9:43:18 AM
Wages grew at this rate through most of the 90s without ill effect. "Significantly faster" in this context should be rephrased to "restored to normal growth". Wages growing at a real 1 to 1.2% or so shouldn't scare anyone if we have a stable economy. 2.1% - that would be a reason to have concern.
Whats the total productivity increase over the last 6 years, 12%? And now, after between 3 and 6 months of wage increases - so a less than 1% wage increase in total, we have an article about wages growing "significantly faster"? No wonder the Dems won!
Posted by: mickslam at Dec 8, 2006 10:27:31 AM
How likly is it that the fed will let wages rise 10% more than productivity growth (which is what it would take to catch up) before they see as inflationary and shut down the economy?
Posted by: joan at Dec 8, 2006 1:57:19 PM
I wish I still trusted gov't statistics.
The rich get richer, faster than ever, and that's fine; but when the working class gets a tiny bit more, after years of lagging income growth, it's a problem?
If this is the way our leaders think, the revolution's just one economic collapse away.
Posted by: Bob Dobbs at Dec 8, 2006 6:10:19 PM
"How likly is it that the fed will let wages rise 10% more than productivity growth (which is what it would take to catch up) before they see as inflationary and shut down the economy?"
That wouldn't surprise me in the least. The root problem is that the Fed is a socialist institution, trying to centrally manage the most critical element of the economy, viz. time preference and interest rates. A free market banking system is sorely needed.
Posted by: guest at Dec 8, 2006 6:20:18 PM
This is consistent with a semi-competitive marketplace where competition does force producers to pass productivity improvements on to consumers, but only eventually.
When some means of improving productivity becomes known, capital has better things to do than compete on cost, and each competitor can remain cost competitive by passing a fraction of their own cost savings on to the consumer. This phase of innovation should be marked by larger profits. But once many competitors have implemented the innovation, if further innovations are not forthcoming, then capital begins to lack options more attractive than competing on price in more mature markets, and profit margins fall as competition begins to re-assert itself.
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