Here is a look at two key numbers in last week’s monthly employment report for June:
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The government has been tracking the data for Production and Nonsupervisory Employees for decades. But coverage of Total Private Employees only dates from March 2006.
Let’s examine the broader series, which goes back far enough to show the trend since before the Great Recession. I want to look closely at a five-snapshot sequence.
First, here is a chart of the Average Hourly Earnings. I’ve included a linear regression through the data to highlight the trend. Hourly earnings increased at a faster pace through 2008, but the pace slowed from early 2009 onward.
But the hourly earnings above are nominal (not adjusted for inflation). Let’s look at the same data adjusted for inflation using the Consumer Price Index. Since the government series above is seasonally adjusted, I’ve used the seasonally adjusted CPI, and I’ve chained the series to the dollar value of the latest month of hourly wages so that the numbers reflect the purchasing power in today’s dollars. Since an official CPI for the most recent month hasn’t been released, I’ve extrapolated that value from the percent change of the two previous months. As we see, the difference is amazing.
The decline in real wages at the onset of the recession accords with our expectations. But why the rise in the middle of the recession when the Financial Crisis began unfolding in earnest? Let’s add another data series to the mix: Average Hours per Week. About eight months into the recession, hours per week began to fall. The number bottomed a few months before the recession ended and then began increasing a few months after it ended.
For a better understanding of the relationship between hourly earnings and the average work week, let’s overlay the two. We see a striking inverse correlation during the Financial Crisis. And by the Fall of 2010, the two began to reverse their directions.
