How the Majority Makes Out in the Economy
How does the economy work for the majority of people? If you want to get information from the major media, you have to be careful and not just look at the most prominently presented figures.
Even using a comparatively good source such as the Washington Post, you need to go step by step through their 10/31/18 article "U. S. workers see fastest wage growth in a decade, but inflation takes a toll"
The first sentence of the article says that wages rose 2.9% from September 2017 to September 2018. The second sentence says that is the biggest increase (not adjusted for inflation) in 10 years.
It then tells us that adjusted for inflation, wages rose 0.6%, and that is the biggest increase in 2 years.
We're then told that unemployment is at a 49-year low, and this has put pressure on employers to increase wages. [Apparently, under such pressure, employers consider a 0.6% rise in real wages after a decade of low wage growth to be "good."]
They then quote an eonomist saying that wage growth (not adjusted for inflation) "is likely" to go above 3% "soon."
A few paragraphs later, there's a link to another article which says the economy grew at a rate of 3.5% in the third quarter [not "soon," but already.]
Now, further down in the article, we're told, "Some have argued that companies were holding off on increasing wages because they were having to put more money toward benefits, but the Employment Cost Index also tracks benefits costs, and those have not risen as much as wages. Benefits grew 2.6 percent in the year ending September 2018..."
[So, what workers received (wages and benefits together) was actually LESS than the 2.9% (unadjusted for inflation) or 0.6% (adjusted for inflation.)]
Reading a little further, one is told that not all workers are getting the prominently quoted wage increases. It says, "While manufacturing and other blue-collar professions are seeing some of the fastest job growth since the mid-1980s, pay is not rising. Most of the wage growth in the Employment Cost Index is coming from service-sector jobs. Pay in the “goods-producing sector” has actually slowed in the past year..."
So, the more informative media tells us, "This is the rate of wage increases... Unless you take inflation into account, in which case it's really this lower figgure... Unless you take benefits into consideration, in which case it's this lower amount... Unless you're a blue-collar worker..."
Even this doesn't give the full story. When the government and media compare wage increases to inflation, they're usually using the government's Consumer Price Index (CPI.) The problem is that, as this Forbes article explains, the government has a vested interest in calculating the CPI in a way that gives a low number. (Increases to Social Security benefits, military and government pensions, and other government expenditures take the CPI into consideration, so the lower the CPI, the lower the government spending. Employers may also prefer this so that low pay increases don't look so bad compared to the CPI.) As a result, the small "adjusted for inflation" wage growth that is quoted is, in reality, even less than that because inflation is greater than indicated by the CPI.
Furthermore, inflation doesn't affect all income groups the same. This article, "Inflation May Hit the Poor Hardest" from fivethirtyeight.com helps explain.
The other half of the question is who gets how much of a pay raise. The average may be 2.9% (unadjusted), but not everyone gets the same. In 1965, the average CEO received 20 times as much as the average worker. According to the AFL-CIO , in 2017, CEO's averaged 361 times as much as the average worker. An Economic Policy Institute report estimated that CEO's made 271 times as much as average workers. In either case, average workers aren't getting anywhere near the same raises as executives.
Pew Research's report says:
"Meanwhile, wage gains have gone largely to the highest earners. Since 2000, usual weekly wages have risen 3% (in real terms) among workers in the lowest tenth of the earnings distribution and 4.3% among the lowest quarter. But among people in the top tenth of the distribution, real wages have risen a cumulative 15.7%, to $2,112 a week – nearly five times the usual weekly earnings of the bottom tenth ($426)."
[Please remember that the percentages in the above quote are cumulative wage increases adjusted for inflation over a 17 year period. And if the CPI was used to adjust for inflation, those figures are actually higher than if calculated against the full inflation rate.]
There's one other economic factor worth noting. According to the government's Bureau of Labor Statistics , "From the third quarter of 2017 to the third quarter of 2018, productivity increased 1.3 percent..." That is, while real wages rose by 0.6% (less if not using CPI, less if one considers benefits, and even less for those with lower pay), workers produced 1.3% more each hour. Adjusted for inflation and productivity, one might consider average wages to have fallen.
This is the reality of how the majority are treated by the economy even when a tight labor market is supposedly pressuring bosses to pay more. And you'll only get half the story by reading the entire Washington Post article.
Even using a comparatively good source such as the Washington Post, you need to go step by step through their 10/31/18 article "U. S. workers see fastest wage growth in a decade, but inflation takes a toll"
The first sentence of the article says that wages rose 2.9% from September 2017 to September 2018. The second sentence says that is the biggest increase (not adjusted for inflation) in 10 years.
It then tells us that adjusted for inflation, wages rose 0.6%, and that is the biggest increase in 2 years.
We're then told that unemployment is at a 49-year low, and this has put pressure on employers to increase wages. [Apparently, under such pressure, employers consider a 0.6% rise in real wages after a decade of low wage growth to be "good."]
They then quote an eonomist saying that wage growth (not adjusted for inflation) "is likely" to go above 3% "soon."
A few paragraphs later, there's a link to another article which says the economy grew at a rate of 3.5% in the third quarter [not "soon," but already.]
Now, further down in the article, we're told, "Some have argued that companies were holding off on increasing wages because they were having to put more money toward benefits, but the Employment Cost Index also tracks benefits costs, and those have not risen as much as wages. Benefits grew 2.6 percent in the year ending September 2018..."
[So, what workers received (wages and benefits together) was actually LESS than the 2.9% (unadjusted for inflation) or 0.6% (adjusted for inflation.)]
Reading a little further, one is told that not all workers are getting the prominently quoted wage increases. It says, "While manufacturing and other blue-collar professions are seeing some of the fastest job growth since the mid-1980s, pay is not rising. Most of the wage growth in the Employment Cost Index is coming from service-sector jobs. Pay in the “goods-producing sector” has actually slowed in the past year..."
So, the more informative media tells us, "This is the rate of wage increases... Unless you take inflation into account, in which case it's really this lower figgure... Unless you take benefits into consideration, in which case it's this lower amount... Unless you're a blue-collar worker..."
Even this doesn't give the full story. When the government and media compare wage increases to inflation, they're usually using the government's Consumer Price Index (CPI.) The problem is that, as this Forbes article explains, the government has a vested interest in calculating the CPI in a way that gives a low number. (Increases to Social Security benefits, military and government pensions, and other government expenditures take the CPI into consideration, so the lower the CPI, the lower the government spending. Employers may also prefer this so that low pay increases don't look so bad compared to the CPI.) As a result, the small "adjusted for inflation" wage growth that is quoted is, in reality, even less than that because inflation is greater than indicated by the CPI.
Furthermore, inflation doesn't affect all income groups the same. This article, "Inflation May Hit the Poor Hardest" from fivethirtyeight.com helps explain.
The other half of the question is who gets how much of a pay raise. The average may be 2.9% (unadjusted), but not everyone gets the same. In 1965, the average CEO received 20 times as much as the average worker. According to the AFL-CIO , in 2017, CEO's averaged 361 times as much as the average worker. An Economic Policy Institute report estimated that CEO's made 271 times as much as average workers. In either case, average workers aren't getting anywhere near the same raises as executives.
Pew Research's report says:
"Meanwhile, wage gains have gone largely to the highest earners. Since 2000, usual weekly wages have risen 3% (in real terms) among workers in the lowest tenth of the earnings distribution and 4.3% among the lowest quarter. But among people in the top tenth of the distribution, real wages have risen a cumulative 15.7%, to $2,112 a week – nearly five times the usual weekly earnings of the bottom tenth ($426)."
[Please remember that the percentages in the above quote are cumulative wage increases adjusted for inflation over a 17 year period. And if the CPI was used to adjust for inflation, those figures are actually higher than if calculated against the full inflation rate.]
There's one other economic factor worth noting. According to the government's Bureau of Labor Statistics , "From the third quarter of 2017 to the third quarter of 2018, productivity increased 1.3 percent..." That is, while real wages rose by 0.6% (less if not using CPI, less if one considers benefits, and even less for those with lower pay), workers produced 1.3% more each hour. Adjusted for inflation and productivity, one might consider average wages to have fallen.
This is the reality of how the majority are treated by the economy even when a tight labor market is supposedly pressuring bosses to pay more. And you'll only get half the story by reading the entire Washington Post article.
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