Friday, 14 of December of 2018

Economics. Explained.  

Average Hourly Earnings

December 7, 2018

Average  hourly earnings rose 0.2% in November to $27.35 after having risen 0.1% in October.  Hourly earnings are gradually accelerating.  During the past year hourly earnings have risen 3.1%.  This is 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 3.5% pace.  This series has been growing somewhat more quickly than the official hourly earnings data 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 fell 0.1% in November after having risen 0.4% in October.  Weekly wages 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 risen 0.9% with a 2.2% increase in compensation partially offset by a 1.3% 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 rising by just 0.9%, the tight labor market is not putting upward pressure on the inflation rate.  Much of the increase in wages is being offset by an increase in productivity.

Stephen Slifer


Charleston, SC



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