US Real Wage Growth During the Pandemic

Real Wages Grew During Two Years of COVID-19 After Controlling for Workforce Composition

Sean Howard, Robert Rich and Joseph Tracy

February 15, 2022

I propose you just read it. They are quite convincing. The bottom line is that real wages increased last year (the top line is nominal wages and yes I like to take figures of speech literally)

This is interesting for two reasons. First, the vast majority of our fellow citizens would consider this graph to be lies, damn lies, and statistics if they knew about it.

Second Jason Furman is a hero. He tried to use an Atlanta Fed series which isn’t what one guesses it is to do this calculation (par for the course) learned it was not what he thought it was and very publicly stressed that his tweeted calculation was incorrect (double eagle hole in one every hole on the course and not quite unprecedented intellectual honesty but – really – something to celebrate)

My charts on the distribution of real wage growth were flat out wrong, as @IrvingSwisher correctly pointed out.

I am glad to learn that US real wages have increased (on average over the past year). My interest is based on my absolute certainty that a huge majority of US adults are sure that their standard of living has recently been eroded by inflation. The evidence I have is that the Michigan consumer sentiment index is at roughly the same level as it was at the trough of the great recession and there is no other explanation except distress over inflation.

I will try to guess what is going on.

  1. People are always convinced things are bad and getting worse. A key data point was the survey in which about 30% of people claimed that their taxes had been increased by Clinton and the Democrats (accurate number less than 2%). An even more striking data point was the survey in which about 30% of people claimed that their taxes had been increased by Bush and the Republicans (accurate number 0%). Also, year after year, during the long decline in crime 1992 a majority of US adults claimed that crime was increasing.
  2. People think inflation means price increases (this is semantics) and when discussing the effect of inflation assume that the alternative is the same increase in nominal income with no increase in prices. This is crazy, but it undeniably the case (ask Shiller pdf warning).
  3. Perceived inflation is based mostly on the price of gasoline and then food. It is even greater than the BLS estimate of CPI inflation (ask Blanchard other pdf warning)
  4. GOP propaganda given exclusive access to Fox news and equal standing with the facts by the MSM

Now I ask what would happen if this debate among economists were reported by the mass media (delivered to your door step by flying pigs). This is unimaginable for three reasons

  1. The facts have a gross liberal bias. The MSM does not dare report the official numbers, because that would enrage Republicans and conservatives
  2. The customer is always right. Discussion of public opinion rarely includes any mention of the fact that most people believe things which are absolutely false. Here one does not have to trust the BLS to assert this. It isn’t that people think that the official books are cooked — they don’t know the official numbers. It is not good marketing strategy to tell your customers that they are ignorant.
  3. Journalists don’t know the facts either. I am sure that part of why the latest announcement is reported without necessary context and explanation is that some of the people reporting just know what was announced and don’t explain what it means, because they can’t.

But here we are, facing a GOP landslide because of a terrible erosion of living standards which has not happened.