I Don’t Care

I don’t care what the editors of the Wall Street Journal tell me about wages:

Researchers at the San Francisco Fed this week updated their 2016 paper that disaggregated the wages of full-time workers with steady employment from recent entrants—that is, new workers or those returning to full-time work. Their earlier analysis showed that average wage growth had slowed less than expected during the recession while staying relatively flat during the recovery.

That’s because workers who lost jobs during the recession were generally lower skilled and lower paid, so average weekly wages didn’t fall significantly. However, many of those workers have since been rehired at below-average wages, which has depressed the aggregate.

In prior expansions, wage growth has been driven mostly by continuously full-time employed workers, and the researchers find that’s still the case. Wage growth for these workers is now close to the pre-recession 2007 peak. But there are now many more workers who have been on the labor-force sidelines who are moving to full-time employment, thus creating a drag on wages.

“Counterintuitively, this means that strong job growth can pull average wages in the economy down and slow the pace of wage growth,” the economists note. The effect is even larger because so many higher-paid baby boomers are retiring. “With so many of this generation still approaching retirement, the so-called Silver Tsunami will continue to be a drag on aggregate wage growth for some time.”

The study portends better wage news for all workers if we can keep the expansion going—and even more if tax reform can accelerate growth by spurring more capital investment and increasing productivity. As ever, the cure for wage stagnation is faster growth and greater demand for workers.

Real median income is below its pre-recession high (heck, it’s still below what it was in 1998). My taxes are significantly higher and rising rapidly. Both property tax and income tax are rising at double digits on a year over year basis. It’s not my imagination that I have less disposable income now than I did in 1977.

And, as Lawrence Summers warned just recently, the likelihood of the expansion continuing for another four years is very low, the Fed doesn’t have the tools to counter a recession with monetary policy, and the will to respond to a recession with fiscal policy is low to non-existent.

The need for basic reforms is growing practically every day.