December 15, 2005

Decline in CPI leads real wages up in November, but at year 4, no gains over recovery

Because of the large decline in inflation in November, hourly wages, adjusted for inflation, were up 1% over the month, according to today’s Real Earnings release from the Bureau of Labor Statistics.  Despite a decline in weekly hours last month, real weekly earnings were also up, by 0.6%.

These real wage gains were largely driven by the 8% decline in energy costs last month, leading the consumer price index (CPI) down 0.6% in November, the biggest monthly drop in over 50 years. 

Despite these monthly gains in November, both hourly and weekly earnings are lower, in real terms, compared to the same month one year ago.  In fact, on a yearly basis, real hourly wages are down in all but two of the last 19 months.  For real weekly earnings, 13 of the last 14 months show yearly declines.

With today’s release, we have a full four years of real wage data over the recovery that began in November 2001.  The real hourly earnings of non-managers in services and blue-collar workers in manufacturing (the sample covered by this survey, which represents more than 80% of payroll employment) are down slightly over this period, as shown in the figure. 

Thus, after four years of solid GDP growth and impressive productivity growth (13.5% in the same time period), the average hourly wage of workers in these occupations is down by five cents.  Even the large monthly spike last month only replaces the real value lost a few months ago (see figure).

In other words, one great month cannot erase the damage done to real wage trends over the longer term.  The loss of five cents in four years is clearly not a success story.

By EPI economist Jared Bernstein

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