Economic Snapshot | Wages, Incomes, and Wealth

Growing economy, stagnant wages

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Snapshot for December 24, 2003.

Growing economy, stagnant wages

Economy watchers have been ebullient over recent evidence that the recovery is finally gaining strength. At the top of this list is the very strong 8.2% pace of gross domestic product (GDP) growth in the third quarter growth of 2003. However, as the figure below reveals, the expansion is not showing up in the one trend that arguably matters most to working families: the growth of real hourly wages.

Growing economy, stagnant real wages

The bars on the right show the annualized growth rate of the real wages of blue-collar workers in manufacturing and non-managers in services—i.e., the bottom 80% of the private-sector workforce. Clearly, wage growth has been flat, and has even fallen slightly behind inflation in the past few months (the fourth-quarter estimate is the average of October and November).

The other set of bars represent real GDP growth, using the Blue Chip consensus (an average of about 50 professional forecasters) of 3.9% for the fourth quarter of 2003. Economic growth is expected to have slowed considerably from the third quarter’s accelerated pace, but the gap between overall growth and wage growth remains particularly wide. Economists correctly point out that wage growth responds to overall growth with a long lag, but this is of little consolation to the working experiencing significant cognitive dissonance as they hear the economic cheerleading coming from most market analysts.

This week’s Snapshot was written by EPI economist Jared Bernstein.

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