Dollars and Jens
Tuesday, May 11, 2004
income to labor
I should clarify that when I wrote Sunday that income to labor grew at an annualized 7% rate, that was only wage income, and didn't count benefits.

I should also mention why I highlight this number: some of the members of the Open Market Committee have been talking up unit labor costs as an important indicator of late, essentially saying that inflationary pressures will be a concern only when the costs to employers of hiring workers are going up faster than the productive value of those workers. That 7%, then, is to be compared against the 4.2% growth rate announced a week earlier.

The payroll number gets more attention, probably because it's less volatile, but if payrolls expand over a sustained period of time while wages and benefits remain flat, it's not a great threat to the purchasing power of the dollar. In that context it's worth noting that weekly wages were actually down in the March employment report, though they made that up and more in the most recent (April) report.

I wonder whether tax receipts might be a more accurate measure of this than the payroll survey; the latest CBO Monthly Budget Review indicates that Medicare withholding, adjusted for timing of holidays and paydays (viz. Fridays), have been running 6.9% higher than last year. This, again, will tend to exclude non-taxable benefits, so that unit labor costs will actually be running somewhat higher than 6.9% minus (real) GDP growth.

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