A look at the increases and decreases in wages
People have been talking about the evolution of wages. Some say they’re increasing, others say they’re decreasing. Who’s right? As is so often the case in economics, it depends. First let’s look at the graph above, which has four different indicators for wages. Three of them show a clear and steady upward trend. But one of them—the green line, which shows median weekly earnings—is starkly different. It could be because the median is different from the mean if the distribution of wages skews strongly at the top. Or it could be that people work less per week. Or it could be that it’s a real measure, whereas the others are nominal.
The second graph corrects for this bias. The three nominal series are now real, after being divided by the consumer price index so that general price increases aren’t reflected in the wage. Now all four series evolve along basically the same path. It’s clear that decreases can be frequent and sometimes long lasting. It’s also clear there’s a lot of variability, which means one should really wait for a good amount of data before reaching for any conclusions.
How these graphs were created: For the first graph, search FRED for “wage” and pick the four series. Limit the time period to the past 10 years. From the “Edit Graph” section, choose “Index” for the units with the default of 100 at the end of the last recession. Then click on “Apply to all.” For the second graph, add the CPI to each of the three nominal series, apply formula a/b, and again choose “Index” for the units.
Suggested by Christian Zimmermann.
A couple of months ago, FRED added Bureau of Labor Statistics data on the costs of employment. You can dissect these data in many ways—for example, by sector, type of compensation, bargaining status, occupational group, or region. Here we do a high-level comparison of compensation between the public and private sectors. These data are available as indexes, which means they reveal something about their relative evolutions over time, but nothing about their relative levels at any moment in time. The graph above tells us that wages and salaries have increased faster in the private sector. But, as both series are normalized to 100 in 2007, we can’t say whether wages had been better in the public sector and the private sector is just now catching up.
Of course, wages and salaries are only part of compensation. There are also various benefits. Some of these are difficult to quantify (pension benefits, for example, are realized only at some point in the future), but the BLS makes the effort to quantify all this. The private/public sector comparison of benefits in the graph below shows more growth in the public sector. Again, this graph says nothing about the levels. However, the two graphs in combination do tell us something: Relatively speaking, compensation in the public sector is increasingly in the form of benefits, while compensation in the private sector is increasingly in the form of wages and salaries.
How this graph was created: Search among the release tables for the Employment Cost Index and explore the data. The two graphs were created by selecting the appropriate series from Tables 1 and 3.
Suggested by Christian Zimmermann
View on FRED, series used in this post:
Unemployment has been a fixture in the news since 2008, but relatively little has been said about wages. So how have wages changed as the U.S. has weathered the Great Recession and the spike in unemployment? Most people would expect that wages have decreased, but data in FRED offer a different perspective. The graph above shows two time series from the Bureau of Labor Statistics: unemployment (red line) and private industry wages and salaries (green line) from the employment cost index. Note that even when unemployment rapidly doubled, the green wages line continued to rise (albeit at a reduced rate). In other words, as the economy contracted and employers sought to cut costs, they almost exclusively opted to lay off workers rather than negotiate for lower wages. This phenomenon is known as downward nominal wage rigidity: During macroeconomic shocks such as recessions, wages remain “sticky.” Of course, it’s possible that inflation is cutting real wages even if nominal wages aren’t changing. However, when we adjust the wages data for inflation in the graph below (blue line), the pattern remains similar. Although real wages posted a slight decline several years after the recession hit, it pales in comparison to six years of elevated unemployment.
How these graphs were created: For the first graph, search for and add the unemployment series (left y-axis) and the total wages series (right y-axis). For the second graph, add the wages series (a) and the consumer price index (b) as parts of a single data series. Do this using the “Modify Existing Series” option within “Add Data Series.” Set the units for both (a) and (b) to “Index” with the observation date equal to 2007-11-01. Then, in the “Create your own data transformation” option, enter “(a/b)*100” in the formula box and apply the transformation. For the trend line, choose “Trend Line” under “Add Data Series” and set the start date to 2007-10-01. Set both the start and end values to 100.
Suggested by Ian Tarr.
View on FRED, series used in this post: