The Mysterious Case Of America's Negative Real Wage Growth

Tyler Durden's picture




 

Regular readers are aware that one of our favorite data series when it comes to demonstrating the quality aspect of the American "recovery" (the quantity is sufficiently taken care of with part-time workers filling in positions without benefits and job security in the New Normal) is that showing the annual average hourly earnings growth in nominal terms, which in November posted the tiniest bounce from its all time low print of 1.2%, rising to 1.3%.

The problem as noted above, is that this is nominal wage growth. It therefore excludes the impact of inflation which according to the CPI, rose by 2.2% in October, or, in other words, wage growth was negative in real terms. But it wasn't negative only in October and November. When one takes the Y/Y change in average hourly earnings and subtracts the Y/Y change in CPI one gets a very troubling picture: wages have risen below the rate of inflation for 22 consecutive months, with real wages printing their last positive number back in January 2011 and negative ever since!

So how does one explain this disturbing news that nobody reports on for fear it would upend all narrative of a recovery, as one can not have a recovery if real wages have been declining for nearly two years in a row? Bloomberg's Rich Yamarone takes our big picture jobs Quality-vs-Quantity theme, and granularizes it, showing that since the "end" of the Great Recession, the most jobs gained, are those who have had the lowest change in average hourly earnings:

Another critical component of this low-wage hiring trend is the eroding rate of wage growth. During November the pace of average hourly earnings for all private workers increased just 0.2 percent from October, and remained a mere 1.7 percent higher than a year ago. This is not keeping up with the pace of underlying inflation, which was 2.2 percent during October (as measured by the consumer price index.) The year-over-year increase in average hourly earnings for production and nonsupervisory workers was 1.3 percent in November, a negligible difference from the 1.1 percent rate in October, which was the lowest since recordkeeping  began in 1964.

 

Wage growth is simply not keeping pace with the underlying rate of inflation. Wage growth in two of the largest industries isn’t even advancing by 1.0 percent per year. Leisure and hospitality average hourly earnings growth in the last year is a lowly 0.5 percent, while professional and business services earnings are 0.8 percent higher than November 2011.

His conclusion is sadly spot on:

One doesn’t have to be an economist to know that economic output and employment is a function of income and wage growth. Consumers cannot spend what they don’t have.

Well, in that case Krugman must be an economist to "know" that consumers can and will spend much more money than they will ever make as long as the US government keep handing it over to them and everyone somehow continues levering up in expectation of the magical "snap" moment, when this too trend of negative real wage growth will reverse just because, and everyone will be perfectly wealthy once again.

Because ECON101 said so.

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Mon, 12/10/2012 - 09:54 | 3048303 CPL
CPL's picture

I'll get the Hardy Boys and Nancy Drew on the case.

Mon, 12/10/2012 - 10:14 | 3048347 LouisDega
LouisDega's picture

They are not of my generation. I was thing more of Columbo

https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcS2r_P65oLiS8S9d5Qt...

Mon, 12/10/2012 - 11:13 | 3048361 TruthInSunshine
TruthInSunshine's picture

For insight on the clear & present danger that the Krugmans of the world pose to everyone (to the extent that their ideas gain influence amongst central banksters and legislators), Paul "When Mar's Attacks" Krugman has now blamed robots, and not the actions of quasi-humans such as one Ben Bernanke, on the loss of skilled, unskilled, and now, professional jobs within the U.S., as well as wage stagnation/declines. He had a big propaganda piece...I mean op/ed...about it in Sunday's edition of The New York Crimes.

Krugman: Robots and Robber Barons

Mon, 12/10/2012 - 12:48 | 3048812 fourchan
fourchan's picture

 

 

We have exported our wage inflation to the lesser slave nations. there is no pricing power in wages for u.s. workers

and since this is the only measure of inflation benake looks at he is a fool interpreting shadows on a wall.

 

 

Mon, 12/10/2012 - 13:31 | 3048944 LMAOLORI
LMAOLORI's picture

 

 

 

Corporate profits hit record as wages get squeezed

snip

Just four years after the worst shock to the economy since the Great Depression, U.S. corporate profits are stronger than ever.

In the third quarter, corporate earnings were $1.75 trillion, up 18.6% from a year ago, according to last week'si gross domestic product report. That took after-tax profits to their greatest percentage of GDP in history.

But the record profits come at the same time thatworkers' wages have fallen to their lowest-ever share of GDP.

http://money.cnn.com/2012/12/03/news/economy/record-corporate-profits/

Mon, 12/10/2012 - 14:39 | 3049165 Boris Alatovkrap
Boris Alatovkrap's picture

Strange is Amerika elect Bolshevik and wages are descending! Who is would to think!?

Mon, 12/10/2012 - 15:26 | 3049310 TruthInSunshine
TruthInSunshine's picture

The always talk about corporate profits, yet in the same articles and tripe-fests, they never mention levels of corporate debt...

Hmmmmmm

Tue, 12/11/2012 - 01:12 | 3051111 Blazing Saddles
Blazing Saddles's picture

Clearly all corporations are evil.

Tue, 12/11/2012 - 21:41 | 3054175 blunderdog
blunderdog's picture

You can make whatever moral assertations you like, but the simple bit is that it's profits vs. wages.

Just like it's always been.

Mon, 12/10/2012 - 13:05 | 3048867 Seer
Seer's picture

Just because someone is an idiot it doesn't mean that they can't get some things right (whether it was their intention or not).

Automation DOES displace human jobs.  Consider the highest capitalized company on NASDAQ -AAPL- do you think that their products are being hand-crafted?

Businesses relocate, and when they do they take the opportunity to incorporate changes in their production.  In the case of manufacturing you can bet that there are always changes that incorporate MORE automation.

Take a look at the growth (well, now it's mostly past since everything is contracting) in companies that produce automation/robotic equipment.

It was Automation Weekly (?) who many years ago had an article pointing this all out.

The CON, which you have to be careful to be sucked in to, is in thinking that there's a whole bunch of human jobs that can be returned to US shores.  As tensions increase with foreign govts we'll be seeing US-based companies pulling out and bringing their toys back to the US; BUT, and here's the CON, these companies will manage to get a LOT of concessions for enticement to return to the US: they'd be returning anyway, being kicked out from abroad!

Mon, 12/10/2012 - 18:57 | 3048884 TruthInSunshine
TruthInSunshine's picture

My point wasn't that automation doesn't displace jobs, but that the breaking of all financial and economic markets, along with breaking sub-components such as valuation, price discovery, and supply/demand equilibrium, by batshit crazy-level central fractional reserve radical interventionism is far more responsible for the current (real) depression and corollary job losses, hence Krugman is a fraud to set up the "robots are stealing jobs, oh my!" singular theme.

Mon, 12/10/2012 - 10:22 | 3048365 GetZeeGold
GetZeeGold's picture

 

 

You'll find him at Galt's gulch.

Mon, 12/10/2012 - 10:40 | 3048413 kridkrid
kridkrid's picture

I went back home and I watched Columbo. Let me clear my throat.

Mon, 12/10/2012 - 12:06 | 3048686 AGuy
AGuy's picture

Not to worry, Inspector Clouseau is on the case!

Mon, 12/10/2012 - 13:13 | 3048895 LouisDega
LouisDega's picture

Correction, Thinking more of Columbo, Not thing

Mon, 12/10/2012 - 10:31 | 3048391 Debtless
Debtless's picture

And they would continue to get away with it if it hadn't been for you meddling ZH kids.

Mon, 12/10/2012 - 09:56 | 3048304 bigdumbnugly
bigdumbnugly's picture

mystery?

elementary my dear krugman

Mon, 12/10/2012 - 09:58 | 3048313 MiltonFriedmans...
MiltonFriedmansNightmare's picture

Be carefu Tylerl, a little truth every now and then is refreshing.  Too much truth, on the other hand, can be a dangerous thing.

 

Mon, 12/10/2012 - 09:56 | 3048306 Racer
Racer's picture

And I bet those at the top have still got wages that are soaring!

Mon, 12/10/2012 - 10:43 | 3048421 Crash N. Burn
Crash N. Burn's picture

And I bet those at the top have still got wages that are soaring!

And, of course, the lowest tax rates in history!

Top backet tax rate

If they pay them!

Mon, 12/10/2012 - 09:56 | 3048307 ekm
ekm's picture

Can't we behave like real men?

What the fuck is a NEGATIVE GROWTH?

 

Can't we call it the way it has to be called like:

CONTRACTION, DECREASE, REDUCTION etc.

 

Freaking pussycats.

Mon, 12/10/2012 - 10:59 | 3048464 Crash N. Burn
Crash N. Burn's picture

What the fuck is a NEGATIVE GROWTH?

 Indeed, was watching the BBC business 'news' (yeah, I know, as futile as reading Krugman) and they keep reporting corporations are making a loss.

Mon, 12/10/2012 - 13:10 | 3048883 Seer
Seer's picture

Or, you can try my own coined-phrase: Economies of Scale in Reverse.

Another one that gets me is when all the warmongers (defense contractors with their insiders planted in govt) claim that their budgets are being cut, when what is being cut is the FORECASTED INCREASE.

Hell cannot be hot enough to deliver to these folks what they deserve...

Mon, 12/10/2012 - 15:47 | 3049386 zerozulu
zerozulu's picture

I like " negative growth". To me it means I don't have to go to work and my employer will come to me at home and pay me my salary.

Mon, 12/10/2012 - 09:57 | 3048308 buzzsaw99
buzzsaw99's picture

bonus time

Mon, 12/10/2012 - 09:58 | 3048309 Super Broccoli
Super Broccoli's picture

naaaah come on people, just make some more loans to finance chrismas !

Mon, 12/10/2012 - 10:05 | 3048327 pepperspray
pepperspray's picture

That's what I did. Super easy!

Mon, 12/10/2012 - 09:58 | 3048310 Looney
Looney's picture

I was goning to post "Fucking Unicorns", but don't want to be acused of bestiality...  ;-)

Looney

Mon, 12/10/2012 - 10:03 | 3048316 holdbuysell
holdbuysell's picture

Pile on the Shadowstats' estimate of inflation using the method used by the government in the 80's before changing it and the picture is even worse.

Mon, 12/10/2012 - 10:09 | 3048333 kridkrid
kridkrid's picture

+\- 3%- 4% per year. Compounding interest, being what it is, makes life a bitch for those who actually live in reality vs. the made up CPI. Lies, damn lies and statistics.

Mon, 12/10/2012 - 10:23 | 3048367 holdbuysell
holdbuysell's picture

Shadowstats' current inflation estimate is 9.82%.

Mon, 12/10/2012 - 10:34 | 3048402 exi1ed0ne
exi1ed0ne's picture

But the actual deviation between the two series compounds and gets worse over time.  Even with a 1% deviation, you get a spread of 200K humans per DAY (population growth for example).

Mon, 12/10/2012 - 10:47 | 3048408 kridkrid
kridkrid's picture

So at that pace, prices double in 7-8 years...I'm guessing that most haven't seen their incomes double in that same period of time. And I think that number is pretty fair. Random things in the supermarket that for some reason stick out in my mind, but the little tins of cat food that were .29/can when I first married into cats 8 years ago are now .59/can. A 2 liter of diet coke was almost always on special for .89 or .99 can never be found for less than 1.59. Of course food isn't part of the CPI measure, even if it is the most inelastic thing we buy with our money. Crazy.

Mon, 12/10/2012 - 13:46 | 3049003 blunderdog
blunderdog's picture

CPI only measures all the stuff that doesn't matter.

Mon, 12/10/2012 - 10:38 | 3048409 kridkrid
kridkrid's picture

Double post

Mon, 12/10/2012 - 10:02 | 3048319 dick cheneys ghost
dick cheneys ghost's picture

I would suggest that the nation needs more banker bailouts!!

Mon, 12/10/2012 - 10:04 | 3048320 scatterbrains
scatterbrains's picture

.

Mon, 12/10/2012 - 10:03 | 3048324 Jason T
Jason T's picture

Food stamp benefit was $95 per person in 2008.. now it's $135 per person per month!

There's your raise.. in gov't handouts thus offsetting need to ask employer for raise.

I've got a family of 4, I can make $15 an hour while my wife stays home and get $662 a month in food stamps.  .. if we so wanted to do ..in NY that is.

Mon, 12/10/2012 - 10:23 | 3048369 adr
adr's picture

Exactly, and that explains 1 million more going the welfare route instead of working. Good ol Chicago style socialism. Saul Alinski would be so proud.

Add in a free Obamaphone and Obamanet. In some schools a free Obamapad that isn't supposed to leave the school, but can be "stolen". Nearly free utilities, all the free prescription drugs you can get as long as you fake symptoms of pain for your disability check. Now you get to park next to the door anywhere you go.

Saturday was fun. The first Saturday after the EBT cards were filled, and the last welfare transfer before Christmas. Ghetto people everywhere loading carts with toys. Welfare queen with six kids throwing everything she can in a cart, combining her EBT card with her oldest daughter's who also has three kids.

Makes you so glad to be an American. Wish I didn't have a family to support, it would have been a fun day to test some things.

Mon, 12/10/2012 - 10:04 | 3048326 kridkrid
kridkrid's picture

So I'm sure by the time I hit "save" ten other people will have pointed out that inflation outpacing wages when defined by CPI tells an even rosier picture than reality.

On my drive into my office today, NPR was running a story about how manufacturing was going to return to America thanks to $30,000 robots who can compete favorably vs basic slave labor in china. The story was upbeat. I suppose that the average person who prefers not to think would "think" - "damn straight, American ingenuity will win in the end". I wanted to raise my hand and ask a question, but the cars next to me would have thought it odd.

Mon, 12/10/2012 - 10:13 | 3048346 Whoa Dammit
Whoa Dammit's picture

And the average person doesn't know the $30,000 robots, and their maintenance parts will be made in China or some similar place.

Mon, 12/10/2012 - 10:15 | 3048351 SheepDog-One
SheepDog-One's picture

Forget the manual labor robots....what about the T-1 Terminator androids with the hyper metal alloy combat chasis? 

Mon, 12/10/2012 - 10:25 | 3048376 kridkrid
kridkrid's picture

Nothing like that. These robots blush when you get into their workspace... They said so during the report. The robots are apparantly shy, but excellent workers, and very quick learners; you show them how to do the task one time and they are good to go. I may get one myself.

Mon, 12/10/2012 - 11:11 | 3048499 ParkAveFlasher
ParkAveFlasher's picture

Wait until these cute-n-bashful robots unionize.  Then the only thing blushing will be the consumer's ass-cheeks as they get pounded by titanium AI-driven manparts.

Mon, 12/10/2012 - 13:23 | 3048919 Shizzmoney
Shizzmoney's picture

Isn't this essentially the plot of all of the "Matrix" films?

Mon, 12/10/2012 - 10:51 | 3048434 Joe Davola
Joe Davola's picture

Someday we'll reach Utopia 14

Mon, 12/10/2012 - 11:07 | 3048490 Dapper Dan
Dapper Dan's picture

MADE IN AMERICA

(by robots made in China)

Mon, 12/10/2012 - 10:07 | 3048329 Miramanee
Miramanee's picture

I teach High School Economics. We frame ALL of our discussions about EVERYTHING in terms of real v. nominal. Using this contrast as a frame of refercne allows the students to make observations that are less in line with various rhetorical memes and more prone to real analyses and synthesis.

Mon, 12/10/2012 - 10:10 | 3048337 jimijon
jimijon's picture

Hmmm... not preaching the gospel? Better hurry and get tenure.

Mon, 12/10/2012 - 10:12 | 3048344 kridkrid
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Same day, in the not too distant future, your teaching methods will be called suspect and you might be considered unpatriotic.

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