What's UP with wages?
I stumbled on three, count 'em, pieces on wage growth in the papers this AM.
–Catherine Rampell on recent wage growth and how it might help the incumbent party keep the White House.
–Starbucks says the tight job market is leading them to increase compensation.
–JPMorgan Chase's Chairman Jamie Dimon is giving his employees a raise.
Check out this paragraph from the piece on Starbucks (my bold):
Starbucks said Monday that it is preparing to give pay increases of at least 5 percent to all of its U.S. store workers and managers, a move aimed at shoring up the coffee giant's ability to attract and retain employees in a steadily improving labor market.
I know it's common sense, but this is precisely the nub of the argument I've been making for years, and with extensive evidence. In an economy like ours, with very low union representation, tight labor markets are the working person's best, if not only, friend when it comes to bargaining clout.
Yes, education matters, of course. There's long been a very steep gradient of wage levels by educational attainment. But even some college-educated workers (e.g., younger grads) have experienced flat real wage trends. NY Fed datashow that the median real annual earnings for recent college grads hasn't gone up much since the 1990s, and even the 75th percentile of earnings is now just back to where it was 15 years ago. Elise Gould et al get the same finding for hourly pay of young grads.
And just yesterday I focused on the importance of very low unemployment for low-wage black workers.
So, all this is truly good news, but let's keep it in perspective. First, there's no evidence of wage-push inflation, either in real life or in expectations. Are such pressures building? Perhaps, but as I and others have shown, it's actually hard to link wage pressures to prices in recent years. Inflation remains "well-anchored" even in tighter job markets, so we shouldn't assume anything near full wage/price pass-through.
Second, a lot of what's driving real wage gains is uniquely low inflation. That's not taking anything away from all the above positive news, and no question, another driving factor has been faster hourly wage growth as a function of the tighter job market. But it does mean that as inflation normalizes—e.g., as oil prices regain their footing or shelter prices continue to mount in parts of the country—weekly paychecks won't go as far, i.e., unless hourly wages or weekly hours accelerate to offset the higher prices.
Here's what I mean. The figure below decomposes real weekly earnings into its component parts over 2012-14 and 2014-16. The dot shows the percent growth in real weekly earnings in each period, and it shows a nice, welcome acceleration, from 1% to 3.3% (weekly paychecks are up $30 a week in real $'s over the past couple of years). About a quarter of that acceleration comes from faster hourly wage growth, but the lion's share comes from much slower price growth, which slowed from 3.4% in the first bar to 1.1% in the second one.
So, yeah, there's some wage growth out there, both nominal and real, as you'd expect given that we're working our way towards full employment. But we're not there yet, and many working families have a lot of ground to make up. If today's stories stick and multiply, this progress should continue, which would be a very good thing. Remember, it took seven years of expansion to get here. Let's hang out here for awhile!