Real Compensation in 2005: Helping Sec. Snow with the Data

Bruce Bartlett and Brad DeLong note that even the Washington Times is challenging the credibility of our Treasury Secretary:

According to Mr. Snow’s own numbers, which Mr. Frank had to drag out of him, over the past 12 months average nominal wages, for production and nonsupervisory employees, who account for 80 percent of private-sector employment, have increased by 3.8 percent, while consumer prices have increased by 5.1 percent. That would mean that average real wages as adjusted for inflation had declined by about 1.3 percent. That can’t illustrate “how broadly the benefits of this strong growth impact Americans,” as Mr. Snow tried to suggest. Nor, actually, is it quite as bad as the Treasury secretary grudgingly conceded. The relatively good news is that average real wages over the past 12 months actually increased by one-tenth of 1 percent, as the Labor Department announced in a companion report, “Real Earnings in April 2006,” which was issued at the same time as April’s consumer price index numbers. That’s better than the 1.3 percent decline Mr. Snow was forced to acknowledge.

So which is it – did real compensation rise or fall? The Bureau of Labor Statistics reports a series entitled Employer Costs for Employee Compensation, which reports a series for nominal wage and a series for nominal fringe benefits as well as the sum of these two or total compensation. At the end of 2004, reported wages were $18.07 per hour and reported fringe benefits were $7.50 per hour so total compensation was $25.57. At the end of 2005, reported wages were $18.59 per hour and reported fringe benefits were $7.87 per hour so total compensation was $26.46. Also – consumer prices rose by about 3.4% during 2005. With nominal wages rising by only 2.9% – real wages fell. But fringe benefits rose by 4.9% resulting in an overall increase in nominal compensation of 3.5%.