8 November 2019





UNPUBLISHED LABOR DEPARTMENT DATA UNVEILS A DIM PICTURE OF AMERICAN WAGES




By Raul Elizalde

This article also appeared on forbes.com


The unemployment rate stands at 3.6%, initial claims for unemployment insurance are at their lowest levels in 50 years, and hourly wages, particularly for the lowest earners, seem to be going up. Headline numbers can hardly look better. Is there any reason to doubt that workers are doing great?


Many years ago Warren Buffett walked into a room where I was in. Upon his entrance, everyone including me instantly became, on average, a billionaire (it didn’t last long). The lesson in this is that averages can give a distorted picture of the reality they claim to measure. A similar phenomenon may be at play in employment numbers.


We requested a set of unpublished data* from the Bureau of Labor Statistics (BLS) that breaks down weekly earnings of full-time workers by wage brackets. The numbers that this data set contains leave little doubt that the American worker may not be doing as well as many observers insist.


The data shows a dramatic growth in the percentage of workers who earn below-average wages. In other words, while employment has grown, there is no question that the growth has been heavily concentrated in the lower pay scales. Either the majority of new jobs are those that pay the least, or workers who earn the most have received a disproportionate share of the wage gains, or both.

source: Federal Reserve Bank of San Francisco


Another observation that comes out of the data set is the extent of the damage that the 2008 financial crisis inflicted on the American worker. The economic recovery of the last 10 years did little to reverse it, one reason why the recovery felt “sluggish” despite what seemed to be a steady improvement in labor conditions. The recovery did not change a long-term trend of growing wage disparity.


How can this be, when we hear that wages are going up faster than inflation? This relatively recent condition is true, but the average does not say how many are experiencing it. Just like in the Warren Buffett example above, if only a few workers receive a large bump in pay, the average for everyone goes up even if most do not see any change. This is what the unpublished data set seems to reveal.


And what about the claim that the lowest paid are seeing the highest increases in wages? This is also true, both on the headline numbers and on the set of unpublished data. But this is also a new development that is hardly distinguishable from noise. The fact is that the growing gap between the highest and lowest earners is not showing any signs of ending, despite the latest reversal.

source: Federal Reserve Bank of San Francisco


On top of these issues, the proportion of GDP representing wages has been falling over time. This, at least in part, offsets some of the benefits of wage growth. A growing proportion of household income comes from sole proprietorships, partnerships and LLCs formed as S corporations, which are more typical of higher-paid households than of salaried workers.


Unemployment numbers seem to be excellent on the surface, but this owes to some extent to the way data is reported. Average numbers hide a vastly more complicated situation, where a rising tide seems to be lifting some boats but not others. Those who rely on the “health of the consumer” to dispel doubts about the economic outlook should instead consider to what extent the growing wealth of a decreasing number of consumers can keep things going.


* Usual weekly earnings of employed full-time wage and salary workers by age, sex, race, and Hispanic or Latino ethnicity and Non-Hispanic ethnicity, Annual Averages from the Current Population Surveys. Data is for earnings before taxes and other deductions for employed wage and salary workers and excluding both incorporated and unincorporated self-employed.


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