Tuesday, 16 of July of 2019

Economics. Explained.  

Average Hourly Earnings

July 5, 2018

Average  hourly earnings rose 0.2%in June to $27.90 after having risen 0.3% in May.  Hourly earnings are gradually accelerating.  During the past year hourly earnings have risen 3.1%.  This almost matches the fastest 12-month increase in a decade and it would be growing more quickly except for the impact from retiring baby boomers.  When you lose a number of people who have been working for 40 years who are making high wages, and replace them by younger workers who are making much less, this series will have a downward bias.  The Atlanta Fed has a series called “wage tracker” in which it tries to adjust for this bias and it believes that wages are currently rising at a 3.7% pace.  This series has been growing somewhat more quickly than the official hourly earnings data for some time and, therefore, seems more consistent with the apparent tightness in the labor market.

In addition to their hourly wages workers can also work longer hours and/or overtime.  Increases in their total income are captured by the increase in weekly earnings.  Weekly earnings rose 0.2% in June to $959.76 after  having climbed 0.3% in May.  Average weekly earnings have risen 2.8% during the course of the past year.  Wages  appear to be rising at a moderate pace consistent with a sustained 2.5% pace of consumer spending.

The potential impact on inflation from the tight labor market is best demonstrated by looking at unit labor costs which are labor costs adjusted for the changes in productivity.  In the past year these unit labor costs have fallen 0.9% with a 1.5% increase in compensation more than offset by a 2.4% increase in productivity.  Keep in mind that the Fed has a 2.0% inflation target.  If labor costs adjusted for productivity — which account for about two-thirds of a firms overall costs —  are declining, the tight labor market is clearly not putting upward pressure on the inflation rate and, perhaps, could be pushing it lower.  All of the increase in wages is being offset by an increase in productivity.

Stephen Slifer


Charleston, SC



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