July 16, 2004

More Dismal News on Earnings

The Bureau of Labor Statistics reports on earnings in June:

REAL EARNINGS IN JUNE 2004

Real average weekly earnings decreased by 0.8 percent from May to June after seasonal adjustment, according to preliminary data released today by the Bureau of Labor Statistics of the U.S. Department of Labor. A 0.1 percent increase in average hourly earnings was more than offset by a 0.6 percent decline in average weekly hours and a 0.3 percent rise in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

Data on average weekly earnings are collected from the payroll reports of private nonfarm establishments. Earnings of both full-time and part-time workers holding production or nonsupervisory jobs are included. Real average weekly earnings are calculated by adjusting earnings in current dollars for changes in the CPI-W.

Average weekly earnings rose by 1.7 percent, seasonally adjusted, from June 2003 to June 2004. After deflation by the CPI-W, average weekly earnings declined by 1.4 percent. Before adjustment for seasonal change and inflation, average weekly earnings were $524.37 in June 2004, compared with $521.73 a year earlier.

We live in a time when productivity is growing at between 3% and 4% per year--and thus when real earnings if the labor market were in balance would be growing at the same rate. Yet that's not what's happening: the past year alone has seen the gap between real earnings and labor productivity widen by 5%.

I can't see any way to read this other than that there is *enormous* excess supply in the labor market, and that we are still very far away from anything that might be called full employment--enormous slack in the economy. (Which implies that the unemployment rate is no longer a reliable indicator of the state of the labor market.)

Posted by DeLong at July 16, 2004 07:30 AM | TrackBack | | Other weblogs commenting on this post
Comments

I know the point has been discussed here before, and that benefits costs certainly don't account for the entire 5% gap you describe, but we mustn't foreget that there is a wedge between hourly earnings and employment costs. To the extent that benefits go up along with benefits costs, workers are no worse off. To the extent that benefits costs go up without a corresponding rise in benefits received, neither workers or employers gain, and one or the other must pay the difference.

Posted by: kharris on July 16, 2004 07:50 AM

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When your site is rendered by IE, there is no word wrap on the paragraphs. This happened within the last day or two.

Posted by: Roger Bigod on July 16, 2004 08:04 AM

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Brad, I will second your assessment of excess supply (relative to demand). But this excess is not only domestic, but global. In my business unit, we still get several emails per week welcoming people in India or China to the team. In fairness, a few engineers were hired domestically as well, ironically mostly to replace people who had left.

Besides this offshoring, there is also increased outsourcing of manufacturing and services. Some of that goes to domestic outfits with lower working and pay conditions, and some to foreign countries.

-0.8% for one month sounds like quite a bit. We have discussed doubts about whether the CPI is not underestimated elsewhere, so in reality the shortfall is probably even larger.

On the other hand, one month is not a very long time, and those are preliminary numbers. Later in the year we will see a more precise picture (although I'm not very hopeful it will be a _better_ picture).

Posted by: cm on July 16, 2004 09:31 AM

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The -0.8 monthly drop is due more to drop in hours worked than rise in inflation.

Posted by: spencer on July 16, 2004 10:45 AM

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For kharris to say "To the extent that benefits costs go up without a corresponding rise in benefits received" is to overlook the reality that companies like IBM pass on most of the increase to the employees and cut existing benefits to make up the difference. A company like IBM has hardly had benefit costs go up at all.

Ask all fo th e employees who have lost paid medical retiree benefits, or the employees that have had their pension cash balanced away and you will find kharris's hidden cost argument to be a straw man argument.

Posted by: Me on July 16, 2004 11:18 AM

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Spencer beat to the punch. The average workweek did decline. But real earnings per hour (1982$) also fell from 8.21 to 8.20. So we have seen a secular drop in the employment to population ratio, a drop in the average workweek, and recent declines in real wages per hour. But Don Evans calls this the best economy in his lifetime. Never knew a 3-month old could be Commerce Sec.!

Posted by: Harold McClure on July 16, 2004 11:32 AM

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While we're talking about issues with the web site itself: There's no longer any link to the archives at all on the Movable Type pages. As far as I can tell, I have to go to the main (non-Movable Type) page to get to the archives. Also, on that main page, there's a link for comments that seems meant to take you to an anchor where you can post comments, which I do see at the bottom in the HTML source, but no actual comment form like some of the other pages have (otherwise I'd probably have dropped this comment there), and instead "Warning: Can't connect to local MySQL server through socket '/tmp/mysql.sock' (61) in /Library/WebServer/related_links.inc on line 2
Unable to connect to SQL server".

Posted by: John Owens on July 16, 2004 12:00 PM

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I've believed that the unemployment rate is a poor marker for some time. I think that's because it doesn't include: (1) discouraged workers who have dropped out; (2) people who are working part-time who want to be working full-time but can't find a full-time job; (3) people who are working at jobs well below their experience level and qualifications, because they can't find anything better, and (4) people who have lost their jobs and become private contractors (usually at lower pay, and with no employer-provided benefits). Do you agree, and are there other categories you would add?

Posted by: Rebecca Allen, PhD on July 16, 2004 12:40 PM

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Rebecca, that's why people have been discussing the employment/population ratio, and the increase/decrease in total jobs.

Posted by: Barry on July 16, 2004 02:20 PM

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Site works great with Firefox. And no spyware or pop-ups either.

Posted by: rps on July 16, 2004 03:59 PM

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Rebecca Allen: One major reason that the (un)employment statistics receive so much attention is that employment is considered a strong proxy for living standards. This is because food, shelter, medical care, and other basic necessities of (dignified) life are in this society critically tied to having a well-paid job. Mind you, not "making a contribution", no, "receiving a good paycheck".

The (un)employment rate falls short of this proxy function to the extent that having _any_ job falls short of providing a minimal dignified living standard. This may be related to the apparent discrepancies we are perceiving these days.

And to restate what you said in different words, "unemployment" is not the logical complement of "employment".

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