Standard wage data show that between the spring of 2017 and the spring of 2018, real wages in the U.S. increased only 0.1%. But there are three major problems with these data. First, they don’t account for fringe benefits, which are an increasing proportion of employee pay. Second, standard wage data use an index that overstates the inflation rate. Third, each year the composition of the workforce changes, as older, higher-paid workers retire and young, lower-paid workers enter the workforce.
A study released this month by the White House Council of Economic Advisers addresses these three biases and concludes that real wages grew by 1% in 2017-18, not the measly 0.1% reported in the wage data.
These are the opening two paragraphs of my op/ed in the Wall Street Journal that appeared last night electronically and today in print. The op/ed is titled “Wages Are Growing Faster Than You Think.”
As per my agreement with the Journal, I will post the whole thing when 30 days are up.
Normally when I write a piece for the Wall Street Journal or, indeed, any publication, it’s because I have an idea about something that hasn’t been said and needs to be said. This was not such a case. Instead, an old friend, John Metcalf, whom I met at the first Austrian Economics conference in South Royalton, Vermont, but who went on from economics to law, emailed me. He suggested that the composition effect was potentially large and I should write a WSJ piece about it. I agreed and started to research the issue. Then I found that the Council of Economic Advisers had done my analytic work for me. I wrote it up.
READER COMMENTS
Aaron
Sep 21 2018 at 4:01pm
How does this 1% wage growth compare to previous years?
David Henderson
Sep 21 2018 at 5:49pm
Good question. Check the CEA report cited in the piece. It may have that.
Reader
Sep 21 2018 at 11:18pm
I think the point here is that, if correcting for these biases means that wages always are growing a percentage point faster than we assess, well then this 1% wage growth is, in relative terms, just as relatively slow as people say it is.
The second and third biases seem constant over time, so that’s no reason to change our belief that wage growth has recently been abysmal–whatever the “true” growth is, the relative growth is still very slow. The only one that might change our relative assessment is the first.
Pierre Lemieux
Sep 21 2018 at 9:13pm
Good and useful piece, David!
David Henderson
Sep 21 2018 at 11:40pm
Thanks, Pierre.
Comments are closed.