Dollars and Jens
Wednesday, January 18, 2006
real income gains
Over the past year, consumer prices have climbed 3.4 percent, a slowdown from November's 3.5 percent 12-month inflation rate but still above the annual rise in average weekly earnings -- meaning consumer incomes are not keeping pace with rising prices.Every time I see the statement that real wages haven't risen in the past couple years, I'm surprised for the amount of time it takes me to realize that "wages" include only cash paid out, and excludes benefits.
The latest payrolls release indicates that weekly income has increased from $536.74 to $551.67 in the past year, i.e. by 2.8%. Hours per week must be down slightly, because hourly income is up from $15.88 to $16.37, or 3.1%. In any case, these are similar figures, both slightly behind the 3.4% quoted above. Labor cost numbers, at least from the productivity report, are father behind — new ones should be coming out soon, and they only come out once a quarter, largely because the figures from that report that most interest people (productivity and unit labor costs) are hard to measure with enough precision to see anything month-to-month. In any case, in units of their index, employment costs per unit time worked (compare this to the hourly wage, not the weekly one) went from 158.2 to 166.0 from 3rd quarter to 3rd quarter, or an increase of 4.9%; essentially, the value of the benefits provided has increased faster than wages.
One frequent reason for this — and it's been true for quite a while, particularly in the public sector — is that the cost of health care has been rising faster than other costs; the appropriate inflation measure against which to compare wages would exclude the health care costs that aren't paid out of wages. According to this morning's release, however, inflation this past year with health care costs backed out runs very nearly the same as overall consumer inflation; the discrepancy must be coming from somewhere else this time.
(This is all on top of normal well-known problems with inflation measures that cause them to overstate actual inflation. I won't rehash those issues here.)