By David Sivak
Rep. Cathy McMorris Rodgers of Washington recently said that “wages are growing at the fastest rate since 2008.”
The government publishes various statistics on worker pay, and one of the more common measures shows wages growing at their fastest pace since 2008.
Despite a healthy economy with low unemployment, wage growth remains modest.
House Republicans held a press conference last week, in part to celebrate the six month anniversary of the Tax Cuts and Jobs Act being signed into law.
“Six months ago this week – six months ago this week – historic tax reform was passed and signed into law. In just this short time, we have started to see real results,” said House Speaker Paul Ryan.
Rodgers, who serves as chairwoman of the House Republican Conference, built upon these remarks by listing off some of the ways in which the economy has improved.
“In just six months, we’ve had over a million jobs created, wages are growing at the fastest rate since 2008. Consumer confidence is up. Small business owners are optimistic, and we have record low unemployment – 3.8 percent.”
Most of these data points are pretty easy to verify,
But wage growth can be thorny, if only because there’s no single way to measure it.
A common way is using the employment cost index, and by that measure, Rodgers is correct. Year over year, wages and salaries for all civilian workers grew 2.7 percent in the first quarter of 2018, according to the Bureau of Labor Statistics – the fastest growth rate since Q4 2008.
It’s also common to measure the annual change in hourly and weekly pay for private sector workers. These metrics have risen over the last year as well, but the growth rates aren’t record setting.
Average hourly earnings increased 2.7 percent from May 2017 to May 2018, in line with wage growth for the last two and a half years. On average, weekly earnings cracked 3 percent compared to last year.
These growth rates are nominal, meaning they don’t account for inflation. The picture looks quite different when put in real terms.
Even though average hourly earnings grew 2.7 percent over the last 12 months, inflation virtually cancelled out those gains.
“Nominal wages are increasing, but not at a very fast rate – and prices are increasing nearly as fast, so real wage growth is below 1% year on year,” Orley Ashenfelter, a professor of economics at Princeton University, told The Daily Caller News Foundation in an email. “This is a shade more than in the past.”
Wages have been one of the last economic indicators to rebound since the Great Recession. Wages typically rise as the labor market tightens, yet despite near full employment, wage growth is still modest. “The puzzle here is that most quantity measures suggest the labor market is quite tight – the wage measures do not,” said Ashenfelter.
Economists debate the reasons for sluggish wage growth. A recent article by the Federal Reserve Bank of Kansas City argues that companies that were unable to cut worker pay during the recession may be compensating by giving smaller raises now that the economy has recovered.
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