When the next employment situation report
is released on May 7, 2004, expect very little discussion of the
low unemployment rate, strong job growth, or increasing labor
participation. Now that payroll jobs are growing again, the
economic skeptics are falling back on a new line of defense:
But there are two problems with the
"stagnant wages" claim, one theoretical and one factual.
Theoretically, there really is no battle between capital and labor,
which all "poor labor" arguments implicitly assume. Successful
employers have forever seen the advantages of recruiting,
retaining, and motivating the workforce with good pay and
On the facts, it is true that real wages
have been "stagnant" for the last year or so, but only in the sense
that they remain high and have not declined.
The chart above shows the relentless upward progress of real
average hourly earnings, as reported by the Department of Labor.
Measured in constant 1982 dollars, hourly earnings rose up from
$7.60 in 1997 and 1998, stabilized for two years, rose again during
the 2001 recession, and have held at roughly $8.25
The recession started three years ago in March 2001. Now, 36 months
later, real hourly earnings are 1.85 percent
higher. Compare that to
the 1.95 percent loss on the 36-month anniversary of the
1990-91 recession. Three years after the 1980-82 recession started,
real earnings had also declined by 1.49 percent.
The coming stories about flat real wages
in 2004 bring to mind many counter-arguments. First, we might note
that inflation statistics have been overstated for decades, as
described by the Boskin Commission and many nonpartisan economists,
which implies that real earnings have been underestimated. Or we
could compare Americans' after-tax incomes, which are much higher after the
passage of the 2001 and 2003 tax cut packages. Or we could talk
about how consumption remains robust. Or we could ponder the
dramatic rise in non-wage employee benefits.
But those arguments simply aren't
necessary. The U.S. labor market is in the midst of a solid
recovery after the 2001 contraction, but don't forget that real
earnings never recessed in the first place.
Ph.D., is Research Fellow in Macroeconomics in the Center for Data
Analysis at The Heritage Foundation.