The real wage myth – Econlib


After the 2016 election, several pundits suggested that the Trump victory reflected frustration with stagnant real wages. Unfortunately, this argument is based on a misconception.

The average hourly earnings series at the FRED data site only goes back 12 years, but real wages were doing well before the 2016 election:

BTW, in nominal terms, average hourly earnings are currently $27.77/hour.

FRED does have a much longer series for average wages earned by production and nonsupervisory employees (which currently stands at $23.31):

I could not find median hourly wages, but they did have data on median weekly wages (currently $905):

There was a period of stagnant real wages, but it ended in the mid-1990s. All of these series show significant growth in real wages since the mid-1990s.  Whatever explains the rise of populism in America, it is not stagnant wages.

BTW, these time series understate the growth in total labor compensation, as the cost of fringe benefits such as health care has risen faster than nominal wage growth.  Alternatively, if you believe that health benefits are nearly worthless (my view), then the nominal wage series should be deflated by a price index that excludes health care.  That would show even more rapid growth in real wages.

PS.  There is one downside to writing a post and then delaying the publication.  Today’s Bloomberg has an article that makes many of the same points, and in some cases more effectively.  But it doesn’t have my graphs.



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