Playing With Numbers To Make Wage Growth Look Better

The average hourly wage has risen by 2.5 percent in the last year. We have that on pretty good data from Bureau of Labor Statistics. That’s okay in a context of inflation around 1.7 percent (it translates into 0.8 percent real wage growth), but hardly great. It is not keeping pace with trend productivity growth and is not allowing much catch-up from the bad years in the Great Recession and the immediate aftermath. It also indicates no acceleration from the last two years in spite of unemployment rates that are below the level at which point most economists expect wages to be accelerating.

There have been several efforts to pump up this number to make things look better. Robert Samuelson tells us about one, a study by the San Francisco Fed that shows the median wages of full-time workers who have stayed with the same employer for the last year has risen by 4.0 percent over the last year. While Samuelson (whose piece mistakenly links to this AEI publication rather than the San Francisco Fed paper) tell us that this gap is due to retiring baby boomers being replaced by lower paid younger workers, the study shows that only around 0.5 percentage points of this gap can be explained by retirements.

Furthermore, the study indicates that this effect depressed wages by around 0.2 percentage points in the years 2002-2007, so increasing retirements can only explain about 0.3 percentage points of the slowdown in wage growth compared to the first half of the last decade. The retirement of the baby boomers offers no help on the issue of wage growth not accelerating in the last year since the study indicates it has been somewhat less of a factor in this period than in 2015.

It is also worth recognizing what a narrow group of workers this is describing. These are workers who have been employed full-time by the same employer for at least a year. More than 27 million workers are presently employed part-time (22 plus million choose to work part-time). More than 5 million workers lose or leave their job every month. So this growth figure refers to a relatively privileged segment of the workforce. It is also a figure that includes a tenure and experience premium, since by definition these workers have a year’s more experience in 2017 than they did in 2016.