Which side are you on? Fed edition

Posted: 16 September 2015 in Uncategorized
Tags: , , ,

A commonly heard argument these days, especially in and around the Federal Reserve, is that workers’ wages are not going up because productivity growth is very slow.

Here’s the version of the argument by Jeffrey M. Lacker (pdf), President of the Federal Reserve Bank of Richmond:

Some argue there must be excessive slack in labor markets if wage rates are not accelerating. But real wages are tied to productivity growth, and productivity growth has been slow for several years now. Wage growth in real terms has at least kept pace with productivity increases over that time period, which is perfectly consistent with an economy from which labor market slack has largely dissipated.

But, as I showed the other day, there’s been a growing gap between productivity and wages since the mid-1970s. Thus, for example, between 1973 and 2014, gross productivity increased by 1.52 percent a year. During that same period, the median hourly wage grew by only .09 percent a year and median hourly compensation (including both wages and benefits) increased by only .20 percent a year.

So, no, real wages in the United States are not tied to productivity growth—and haven’t been for more than four decades.

fredgraph

That’s why the wage share of national income has been falling and, since the late-1980s, the profit share has been rising.

Or, as Fed-watcher Tim Duy explains,

Real median weekly earnings have grown 8.6% since 1985. Nonfarm output per hour is up 79% over that time. Yet the instant that there is even a glimmer of hope that labor might get an upper hand, the Federal Reserve looks to hold the line on wage growth. It still appears that the Fed’s top priority is making sure the cards remain stacked against wage and salary earners.

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