Beware the illuson of wages growth

Via the FOMC:

Despite a sharp spike in unemployment since March 2020, aggregate wage growth has accelerated. This acceleration has been almost entirely attributable to job losses among low-wage workers. Wage growth for those who remain employed has been flat. This pattern is not unique to COVID-19 but is more profound now than in previous recessions. This means that, in the wake of the virus, evaluations of the labor market must rely on a dashboard of indicators, rather than any single measure, to paint a complete picture of the losses and the recovery.

Median usual weekly earnings and other aggregate measures of wage growth can be useful tools for analyzing how the average worker is progressing economically. But sometimes readings of these measures can give false signals. This is because factors other than increases or decreases in wages paid to individuals can influence whether median earnings rise or fall. The current economy is a perfect example. Recent data show that median usual weekly earnings of full-time workers have grown 10.4% over the four quarters preceding the second quarter of 2020. This is a 6.4 percentage point acceleration compared with the fourth quarter of 2019. The median usual weekly earnings measure that we focus on here is not an exception. Other measures of wage growth—like average hourly earnings and compensation per hour—show similar spikes.

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David Llewellyn-Smith
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