News from EPI Faster wage growth meets slower price growth

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NewsFlash: October 18, 2006

Faster wage growth meets slower price growth

By  Jared Bernstein, EPI senior economist

Thanks to falling energy costs, real hourly wages grew 2.2% over the past year, their fastest growth rate in over four years.  On a monthly basis, real wage growth was up just under 1%, the best monthly gain since December 1982  [PDF]. Weekly earnings were also up 2.2% over the past year.

With unemployment relatively low, nominal wages (before adjusting for inflation) had been growing more quickly in recent months, as the tighter job market gave workers more bargaining power.  However, until last month, faster price growth was offsetting the nominal wage gains, and wages were flat or falling (the data in today’s real earnings report refer to blue-collar manufacturing workers and non-managers in services).

The figure reveals the large monthly spike as faster wage growth met slower price growth last month.  The figure also shows, however, that this group of workers has made little progress over the course of the recovery that began in November 2001.  In today’s dollars, the hourly wage is $16.84, just a few cents above the real hourly wage from November 2001: $16.79 (for weekly earnings, the comparable values are $567 in Nov01 and $569 in Sep06).  With productivity growth up 14% over the recovery, most workers, especially those in non-managerial occupations, have failed to benefit from the productivity-rich expansion.

Looking forward, as the economy and job market slows, wage pressures may reduce and nominal wage growth is likely to recede.  However, if inflation remains in a moderate range, we are likely to see continued real wage gains in coming months, though smaller than those in September. 

Figure: Real Hourly Wage Growth, Nov01-Sep06