New Wages and Salaries Data from the Employment Cost Index Show Yet Again It’s Not Quite Time To Declare Mission Accomplished
This morning, the Bureau of Labor Statistics released the 2014 third quarter data from the Employment Cost Index (ECI). Total compensation and wages and salaries for the private-sector workforce both rose 0.7 percent. This is the second straight quarter of faster-than-average growth since the recovery from the Great Recession began. While this is absolutely a move in the right direction, we shouldn’t declare “mission accomplished” in spurring decent wage growth. The figure below shows the year-over-year growth rates of wages from a variety of measures: the ECI, hourly wages of all workers and hourly wages of production and nonsupervisory workers (the latter two from the monthly payroll survey, which will be updated again in a week).
There are two clear trends to note from the graph. First, all the series move fairly consistently with each other over time. In the third quarter, they all measured between 2.0 and 2.3 percent. Second, these growth rates are still far lower than the growth rates in 2007, when the wage growth ranged from 3.1 percent for all workers in the payroll survey to 4.1 percent in the ECI.
Year-over-year growth rates of wages, 2002–2014
| Date | ECI*, all workers | CES**, production/nonsupervisory workers | CES**, all workers |
|---|---|---|---|
| 2002-01-01 | 3.5% | 3.0% | |
| 2002-04-01 | 3.6% | 2.7% | |
| 2002-07-01 | 3.1% | 2.9% | |
| 2002-10-01 | 2.6% | 3.1% | |
| 2003-01-01 | 2.9% | 3.2% | |
| 2003-04-01 | 2.4% | 2.9% | |
| 2003-07-01 | 2.9% | 2.6% | |
| 2003-10-01 | 3.1% | 2.0% | |
| 2004-01-01 | 2.6% | 1.7% | |
| 2004-04-01 | 2.8% | 2.0% | |
| 2004-07-01 | 2.6% | 2.1% | |
| 2004-10-01 | 2.6% | 2.5% | |
| 2005-01-01 | 2.7% | 2.6% | |
| 2005-04-01 | 2.5% | 2.6% | |
| 2005-07-01 | 2.3% | 2.7% | |
| 2005-10-01 | 2.5% | 3.0% | |
| 2006-01-01 | 2.5% | 3.4% | |
| 2006-04-01 | 2.8% | 3.9% | |
| 2006-07-01 | 3.1% | 4.1% | |
| 2006-10-01 | 3.2% | 4.1% | |
| 2007-01-01 | 3.5% | 4.1% | |
| 2007-04-01 | 3.4% | 4.0% | 3.6% |
| 2007-07-01 | 3.3% | 4.1% | 3.4% |
| 2007-10-01 | 3.3% | 3.8% | 3.2% |
| 2008-01-01 | 3.2% | 3.8% | 3.1% |
| 2008-04-01 | 3.1% | 3.7% | 2.8% |
| 2008-07-01 | 2.9% | 3.7% | 3.2% |
| 2008-10-01 | 2.6% | 3.9% | 3.5% |
| 2009-01-01 | 2.0% | 3.6% | 3.4% |
| 2009-04-01 | 1.6% | 3.1% | 2.9% |
| 2009-07-01 | 1.4% | 2.7% | 2.4% |
| 2009-10-01 | 1.4% | 2.6% | 2.1% |
| 2010-01-01 | 1.5% | 2.5% | 1.8% |
| 2010-04-01 | 1.6% | 2.5% | 1.8% |
| 2010-07-01 | 1.6% | 2.4% | 1.8% |
| 2010-10-01 | 1.7% | 2.2% | 1.8% |
| 2011-01-01 | 1.6% | 2.2% | 1.9% |
| 2011-04-01 | 1.6% | 2.1% | 2.0% |
| 2011-07-01 | 1.7% | 2.1% | 2.0% |
| 2011-10-01 | 1.6% | 1.8% | 2.0% |
| 2012-01-01 | 1.9% | 1.5% | 1.9% |
| 2012-04-01 | 1.8% | 1.6% | 1.9% |
| 2012-07-01 | 1.8% | 1.4% | 1.9% |
| 2012-10-01 | 1.8% | 1.4% | 1.8% |
| 2013-01-01 | 1.7% | 1.9% | 2.0% |
| 2013-04-01 | 1.9% | 1.9% | 2.1% |
| 2013-07-01 | 1.9% | 2.1% | 2.1% |
| 2013-10-01 | 2.0% | 2.3% | 2.1% |
| 2014-01-01 | 1.7% | 2.3% | 2.1% |
| 2014-04-01 | 1.9% | 2.3% | 2.0% |
| 2014-07-01 | 2.2% | 2.3% | 2.0% |
* Employer Cost Index
** Current Employment Statistics
Note: All series are for private sector workers.
Source: EPI analysis of Bureau Labor Statistics' Employer Cost Trends and Current Employment Statistics
The fact is that the weak labor market of the last seven years has put enormous downward pressure on wages, and there has been no significant and sustained pickup in nominal wage growth in recent years. Employers still don’t seem to have to offer big wage increases to get and keep the workers they need, when hiring rates and net job creation remain far slower than what’s needed to generate healthy labor market outcomes.
If recent wage growth in the 2-2.5 percent range is too slow, what’s a more reasonable benchmark on wages that would be genuinely encouraging? A quick rule of thumb is that nominal wage growth of 3.5 percent is consistent with the Federal Reserve Board’s 2 percent price inflation target and a stable labor share of income (given 1.5 percent trend productivity growth). This post provides a more extensive explanation of these targets. We need to see consistent wage growth above 3.5 percent before there is a hint of upward pressure on prices stemming from too-tight labor markets. And in truth, the economy (and workers in it!) could benefit from consistent wage growth that was significantly higher, which would help workers claw back some of the productivity gains that have failed to translate into wage gains. So, yes, the ECI release today has positive news: the trends are moving in the right direction. But, before talking about slowing down the economy, we need to see wage growth far faster and for a far longer time.
Enjoyed this post?
Sign up for EPI's newsletter so you never miss our research and insights on ways to make the economy work better for everyone.