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Wages with benefits

Nominal wages generally increase, but the picture is mixed for real wages. The green line in the top graph shows real wage growth, which is negative a fair amount of the time. Bursts in inflation can counteract the usually small increases in nominal wages. In fact, the strong growth of real wages at the end of the past recession is mostly due to a short episode of deflation.

But wages aren’t the whole story. A job usually also involves other types of compensation, such as the employer’s contribution to retirement pensions, health and life insurance, paid vacation and other leave, and any taxes the employer pays on these benefits. These benefits are now a substantial part of the cost of an employee, and they appear to be growing. The top graph shows that labor compensation growth is frequently higher than real wage growth. We can make this point more clearly by using index values: In the bottom graph, we set both series at 100 in 1970 and let them run. Real compensation growth is significantly higher: the 60% increase looks much better than the 3% increase for real wages.

How these graphs were created: Search for “real compensation” and click on the series shown. In the “Edit Graph” panel, add a new line by searching for “hourly earnings.” Then, within the same panel, add a series by searching for “CPI.” Apply formula a/b to the second line to make earnings real. For the first graph, set units for both lines to “Percent Change from Year Ago”; for the second line, you do this at the bottom of the panel. For the second graph, the selected units are “Index (scale value to 100 for chosen period)”; set the date as 1970-01-01.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: AHETPI, CPIAUCSL, RCPHBS

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