Follow by Email

Friday, April 21, 2017

Bernstein: I’m concerned re the lack of nominal acceleration of the blue-collar wage. [feedly]

I'm concerned re the lack of nominal acceleration of the blue-collar wage.

I said I'd get back to my tweet from this AM showing the deceleration in real wage growth, particularly for blue-collar workers. This is not exactly the stuff of 140 characters.

One can decompose the change in real weekly earnings for private-sector workers into three parts: changes in nominal hourly earnings, inflation, and average weekly hours worked. As the table below shows, the growth in real weekly earnings equals nominal wage growth – inflation + hours growth. See data note for details, particularly for how to compute the white-collar wage, which, unlike the rest of these data, is not an official BLS series, but a backed-out residual.

Source: BLS, our calculations.

Of course, someone could look at these numbers and declare that the problem is price growth, and that the Fed must continue to tap, if not smack, the brakes. I think that's wrong. What's happened on the price side is that, as energy prices have normalized, inflation has also climbed back to more normal levels. Pursuing deflation to boost real earnings won't work, as it will undercut the demand needed to give middle- and low-wage workers the bargaining clout they otherwise lack.

I don't want to make too much out of this as these data are noisy and the patterns can flip. Also, a lot of my work shows tight labor markets deliver more bargaining clout to less-advantaged workers, so I tend to think that, as we close in on full employment, the nominal pay of lower-wage workers should accelerate. Still, we know that wage inequality is still embedded in our labor market and need to keep a close eye out for the type of divergent trends you see in the table.

In this regard, the key unsettling number in the table is the one in bold showing no acceleration in the blue-collar wage. That bears close watching.

[h/t: Ben Spielberg]

Date note: The wage series for "white-collar" workers is derived from the following relationship:

Emp_a * W_a = Emp_bc * W_bc + Emp_wc * W_wc

Emp represents private employment and W the average wage (either hourly or weekly), with the subscripts a, bc, and wc representing all workers, "blue-collar" workers (production and nonsupervisory workers), and "white-collar" workers (those who are in the private sector but excluded from the production and nonsupervisory series), respectively.  That is, the total hourly wage bill for all private sector workers is equivalent to the total hourly wage bill for "blue-collar" workers plus the total hourly wage bill for "white-collar" workers.  Performing simple algebra and noting that Emp_wc = Emp_a – Emp_bc, we can solve for the average wage for white-collar workers.

Note that "blue-collar" and "white-collar" workers are not perfect descriptions, as which workers are counted in the production and nonsupervisory series varies by industry; a worker in sales in manufacturing might fall in our "white-collar" series, for example, while a worker in sales in a different industry might fall into the "blue-collar" series.

 -- via my feedly newsfeed