Confused over this Real Wage Debate?

Cheney says real wages are rising, while Kerry says they are falling. Who’s right? It seems the Washington Post editorial writers failed to notice it was Cheney who was lying, but Billmon notes the WaPo faux pas from the Whiskey Bar here, here, and here.

The Bureau of Labor Statistics (BLS) reports real average hourly earnings per year (in terms of 1982$), which were as high as $9.08 in January 1973 but only $7.52 by Dec. 1992. During the first Clinton term, this series rose to $7.58 so one might wonder what J. Carter Edwards meant by lower real compensation per hour (more later). Over the next 5 years, real wages rose rapidly reaching $8.24 by Dec. 2001. Real wage growth was very slow over the next 2 years and has been negative over the past 6 months so that real wages in June 2004 dropped to around $8.20.

The Economic Policy Institute (EPI) summarizes the current labor market here as well as shows the recent history for real wages those with lower levels of income:

Despite the fact that it is now over two years since the economy began growing after the downturn that lasted from March to November 2001, the U.S. economy has yet to achieve significant or sustained job creation. In fact, 33 months into this business cycle there are 1.8%, or 2.4 million, fewer jobs than when the recession began. This lack of job growth has been well documented, but its negative impact on the growth of wages has received little attention.

The evidence shows that the persistently weak labor market has reversed the positive wage trends that prevailed towards the end of the last recovery. The slack labor market has hurt both the jobless as well as those who held onto their jobs. The disappointing wage growth in 2003, which resulted in real wage declines for many workers, will continue to beset working families because it will take several quarters of robust employment growth and falling unemployment to once again spark wage growth.

But let’s be fair – labor compensation includes various forms of fringe benefits and not just wages, which leads us to the only part of the Economists for Bush (J. Edward Carter) claims that our friend Mike (“I’m not an economist”) friend did not rebut quite convincingly here – the claims about real compensation.

The Bush-Cheney crowd loves to confuse things and some of their comments noted by Jonathan Weisman and Neil Henderson’s “Quality of New Jobs is Focus of Election-Year Debate” have NOMINAL wages rising and total compensation increases of 13% since Bush took office compared to the 10.5% increase during Clinton’s first term. But Mr. Carter said real compensation fell during Clinton’s first term. Oh wait – the Bush-Cheney crowd was talking nominal again – good grief!

Albert E. Schwenk and Jordan N. Pfuntner discuss how fringe benefits grew as a share of compensation from 1973 to 1992 but fell during the first Clinton term. EPI provide this table of real fringe benefits (in 2001$ but note that the CPI rose by a factor of 1.77 over the 1982 to 2001 period). Over the past few years, real fringe benefits have been rising. Even though Mr. Carter did not provide his source for real compensation, let me suggest the Employment Cost Index – constant dollars – from BLS here, which provides information on various sectors of the economy as well as an overall index for civilian workers.

I guess with all the potential confusion as to how to measure real compensation, we’ll be left with the Economists for Bush crowd manipulating the data this summer, which is a shame since the economists at BLS or EPI not only provide useful data but insightful discussions as to what may be causing the observed trends in real compensation. And I have yet to see either group of economists claim that low savings and investment and a weak economy cause real compensation to rise.