May 27, 2016
Yes, what else is new? The basic story is that Robert Samuelson has discovered a wage series that shows, “many workers are actually receiving modest increases.” Samuelson tells readers:
“…the study [the one showing modest wage growth] exerts pressure on the Fed to raise interest rates.”
The series that has Samuelson so excited is a wage series that tracks the same workers over time. It looks at full-time workers and compares their wages this year with their wages last year. It will exclude anyone who was not employed full-time in both periods and it also will miss anyone who moves, since it is a household survey.
My friend Jared Bernstein has already given a good argument as to why the Fed should not jump on this new series as an excuse to raise interest rates. Let me add three additional points.
First, the gap between this series and the other wage series can be explained by an increased premium for longer tenured workers. More than 4 million workers leave their jobs every month. This series is picking up only the people who stay in their full-time job or leave their job and find a new full-time job, but do not move. That exlcudes a very large segment of the labor force. Suppose this group is getting an increased wage premium. Why is this a rationale for the Fed to raise to interest rates? In this respect, it is worth noting that the wage gains shown by this measure are still almost a full percentage point below the pre-recession pace.
The second point is that we may be tracking the wages of a more narrow group of workers. The share of part-time workers (both voluntary and involuntary) has risen sharply from pre-recession levels. If the group employed at full-time jobs one year apart is a smaller group of workers now than it had been previously then we would expect to see them doing better. Its sort of like saying the top 60 percent of the workforce on average is doing better than the top 70 percent. The compositional change here will not be that sharp, but it can be enough to skew the wage measure upward.
The third and perhaps most important point is that this is only a wage measure, not a comprehensive measure of compensation. We know that employers have been reducing non-wage (mostly health care benefits). This means that for the same level of hourly compensation we would expect to see a higher wage. Over the last five years, this shift should have raised wages by roughly 1.0 percent, or 0.2 percentage points annually.
This effect is likely to be even larger for this group of continually employed full-time workers, the vast majority of whom will have employer provided health insurance. If there is a shift towards lower quality insurance, these workers will be feeling it. That would mean that we would expect to see some offsetting gains in wages.
In short, there is not much of a story here that wages are accelerating, especially since we have so many other series telling us the opposite. It’s touching that folks like Samuelson are so anxious to raise interest rates and throw people out of work, but the rest of us might prefer to see some more solid evidence.
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