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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scatterbrains's picture

Does DHS know what your up to ?   Public school ?  

Whatta's picture

hmmm. Congrats, you have now made the No Fly List!!

Whoa Dammit's picture

Isn't that what Custer said?

dcb's picture

thye bernanke eect, make the 99% poorer but hlp the richest. More proof how the qe policy is really hurting folks

wilburpup's picture

A lot of what would have been wage growth has been eaten up by health insurance costs paid by employers.  Total compensation is therefore somewhat better than these charts indicate.

madcows's picture

first i cancelled the cell phone.  Then, I cancelled cable.  Then I reduced my 401K contribution.  Then I eliminated the 401k contribution.  Then I reduced the high deductible health insurance contribution.  Then I reduced the church offering.  I'm running out of things to cut.  But, of course, inflation is only 2.2%.

Joe Davola's picture

On the bright side, those eliminated 401k contributions leaves less for them to confiscate!

Shizzmoney's picture

Those last two posts here are pretty fucking funny (b/c they are true).

Corporpations want you to sign up for their 401K, yet most won't match said 401K contributions.  Who benefits from this?  The corporate execs (who hold stock) and the investment house (of course). 

I'll take the cash in my already over taxed and under paid check, thank you very much.

I think 401Ks are a bubble.  I can't wait for them to crash (although some people, I'll feel bad) just so I can stick it right in the face of those who shitted on Occupy Wall Street and say, "We told you so, motherfucker!".

mrktwtch2's picture

its getting worse..not better..but someday it will!!

Whatta's picture

seriously...the brand of dog food we eat went up more than 10% in the last month.

what inflation?...or What? INFLATION!!!

Sean7k's picture

Sadly, this passes for imformation. Are we so stupid that we cannot put two and two together without an "expert" to add it up for us? 

The labor market is more competitive with less employment= lower wages are accepted to GET the job. 

Inflation is higher because of the expansion of the money supply versus the manufacture of productive assets. 

This is pretty plain on the face of it and should be EXPECTED. The attempt to satisfy the debt through increased taxes and governmental theft further exacerbates the problem and indicates a fall in our standard of living. It's all greek to me. 

Why are we surprised? Why are we educated? We aren't. People really need to think for themselves, assimilate and analyse information, read past the statistics, look around themselves and find their best solutions. It is not via this type of boilerplate, run of the mill blog crap.

NotApplicable's picture

Good thing you were here to make the point.

Debugas's picture

real wages (in terms of purchasing power) are falling for several decades already

Shizzmoney's picture

Mysterious?  Ain't nuthin' fuckin' mysterious about it.

In a system that is driven by behind-the-curtain shareholders, capital driven by fraud, and politicans who quite simply don't give a shit b/c our government and its central fail bank (Fed Reserve) only serves the interest of the 1%.......this should of been quite frankly, predicted.

But karma dictates that at some point, this has to end.  Either by a crash, or a mass exodus of consciousness of the workers who put up with worsening conditions, stagnant wages, lessening benefits (despite "legislation" passed to help, otherwise), and plutocratic bureaucratic assholes who want to keep the system intact by lowering the taxes they pay, yet raise the taxes on workers WHILE making them compete against labor in other countries, that we export inflation too. 

But hey, iPads have never been cheaper, and the let us wear jeans on Fridays!

Mysterious negative wage growth?  And this is happening in countries that are controlled by the Federal Reserve AND ECB? 

Ain't nuthin' fuckin' mysterious about it.

Freewheelin Franklin's picture

Real wages never keep pace with real (monetary) inflation. Palyi wrote about this in 1960 in "An Inflation Primer", but nobody listened...or cared.

tabasco71's picture

Maybe I am just crap, but... I haven't had a decent wage increase since 2009.

In fact I only get wage increases when I am clever enough to figure out a way to bullshit a different company to pay me more to move to them.... once I am in the door, my wages stagnate again.

Like I say, maybe I am just a shit worker.... but then, I keep getting hired (touch wood)

Shizzmoney's picture

I get a raise (which is also not guarunteed merit increase to me by my company) of 2.5% each year (based off of the CPI number).


- Certain foods like beans, corn, meat, and milk is up 20% since 2005.

- Rent in high employment areas (or at least relative) has risen, like here in Boston, on an average of 5-9.5% each year

- Health Care costs have risen by 6%-19% each year since 2002, even DESPITE government intervention (like here in MA with "HeritageCare").

- Public Transit costs have risen by 25% this year here in Boston. 

Now, I was able to handle these costs as an employee BEFORE the 2008 crash, where it was common for employers to offer paid MBTA passes, summer/XMAS bonsuses, AND the token merit increase (which would be higher b/c the job market was more competitive, which is proven by job vacancy and quit rates). Not anymore.

Oh, and taxes are also now higher. 

Libertartians all the time talk about a "free market".  yet, when it comes to employment today in America, the job market is NOT a free market. 

The game is rigged against workers, small businesses, and those who actually create value for society.

tabasco71's picture

You are getting 2.5%... hmm, so I am shit... I've been getting 1.05-1.8% in each year since the crash.  


I moved company in 2010 and got a 40% hike which I thought would keep me happy for 5 years, but in fact I'm barely treading water again already.


I guess in order to get another wage increase like I did, I'll have to become self-employed... Ooops... who's pulling my trousers down!!!! 

RKDS's picture

It's so bad that some state government employees are going on six years without a raise.  Computer programmers, for instance, are considered management due to some loophole.  We're not protected by the union contract but we don't get any of the perks of being management either.  What option have we but to deliver a level of service commesurate with  falling pay?  Too bad private sector sociopaths squeeze productive workers so much harder.  The gamble of self-employment's looking like the only way out but as wrecked as the economy is...

IamtheREALmario's picture

I suppose that when one considers that real wealth is being siphoned off from the people of this country in the form of interest taxes and foreign labot arbitrage and transferred to parasites that something has to give and that is the wages of the people ... so that they cannot afford their lifestyles and must become wage slaves to the parasites.

If one looks at the real rate of inflation (instead of the falsified CPI) on wages and lifestyle, then the numbers must look much worse.

DeadFinks's picture

We have the perfect president and administration to execute a managed decline of America.  A guiltless liar with the charm that places him beyond reproach of the masses can apply incremental pain without setting off the explosion.  A perfect leader for the frog boil.

roadhazard's picture

Twenty two months ?  How about thirty years. Get real.

khakuda's picture

There is no mystery here.  Labor is oversupplied.  You've added like a billion workers in China over the past few decades.  Central banks are printing like crazy to create inflation (or as they say, avoid deflation) and they are successfully doing that in everything but U.S. wages.  That is their great error.  Inflation isn't good if wages don't keep up.

The end result is more misery, yet that is the path they continue to follow. We'll see even more this week.  When it doesn't work, they will just take more from the haves and give it to the have nots.

Shizzmoney's picture

I wish my liberal Neo-Keynesian friends would see this, the ones who think, "inflation is good!". 

Inflation is only good if the currency, and the institutions which print it, are honest.  And obviously, our banking institutions, and our government, are failed instutitons.  Therefore, the inflation they create, is more destructive. 

People need to get out of debt, stop buying crap, and stop settling for crappy jobs.  Stand up for your fucking selves.

BTW, I'd bet that job creation < population creation.  And since NAFTA and other free trade agreements, we are competing on a global scale. 

Jobs are a bubble.

jplotinus's picture

Tylers say:

" (the quantity is sufficiently taken care of with part-time workers filling in positions without benefits and job security in the New Normal)"

That's enlightening up to a point, but why not complete the thought, thus making it meaningful rather than merely anecdotal? I can help:

Capitalism has a vested interest in keeping people poor, insecure and minimally compensated for work they perform. The logical conclusion to be drawn is, therefore, that capitalism is more apt to destroy jobs than create them.

Hadn't we ought to deal with that?

Just axin' :-/

blunderdog's picture

This has been understood in the past--we maintain an entertainment industry which has driven this very basic understanding out of many people's heads in the USA.

It's really amazing, if you think about it.  I wonder if 30 years of the right teevee programming could similarly convince Americans that water isn't wet.

Shizzmoney's picture

The problem is that money is such a great, mobile thing. It moves so quickly and neatly and everyone is always happy to see it, so the idea is to squeeze as much out as quick as possible and put it elsewhere, especially abroad to countries like China, Bangladesh, etc (also where the government is the beneficiary, and enforcer, for crony corporate malfeasance), where employees are paid even less.

However, now also, executives and investors are mobile (and faceless), and have no connection with the production apparatus they are paying for.  The existence of corporate stock today is just a bunch of alphabetical symbols on a portfolio.  The investor class, and the banking institutions that bankroll them, don't see the faces behind those "profits" (which one can also argue are fraudulent).

There's a limit, however. Now that the 'third world' has as much knowledge as we do, they're building their own capacity and don't await our money so greedily.

They're even biting back, saying we don't know best and shouldn't tell them how to build their factories, economies, governments, etc.  You can thank the IMF for this, otherwise known as the World's Serfdom Export Vessel.

I am in favor of HONEST world trade because it brings cultures together, breaks down barriers between races, and provides a freer market for the consumer.

BUT it's not supposed to be used looting mechanism for the new world class of stateless rich people, and stateless corporate governance, which seek to "unify" legislation in their favor at the behest of the majority of the world's citizens. Of course it is, and that's why we are in the position we are today.

SmittyinLA's picture

There's nothing mysterious about it, our govt has an alien scab labor population replacement program going, our government is an ongoing criminal enterprise.

The state is like is an AIDS virus, its harnessed all the cells of its body (citizens & machinery of govt) to divert all resources to alien population replacement.

Instead of "right to be free from foreign invasion", foreign invasion is policy, at home and abroad. 

Look at local spending in every state, everything is being diverted to subsidize scab replacements, no scabs, no spending, no nutrients. 

Americans have been forced into tax slavery to pay for mass immigration whose only purpose is to "cut the wages" and "grow the herd" of the American pig farm, which apparently Americans don't care own anymore.

Foreign invasion of our own territory and free shit for foreigners not only is public policy, its "outed" public policy.



Shizzmoney's picture

Capuchin Monkeys reject unequal pay......must see:

Pretty sad they have more fight than we do.