Are we approaching labor market equilibrium?

by on December 8, 2006 at 7:33 am in Data Source | Permalink

After four years in which pay failed to keep pace with price
increases, wages for most American workers have begun rising
significantly faster than inflation.

With energy prices
now sharply lower than a few months ago and the improving job market
forcing employers to offer higher raises, the buying power of American
workers is now rising at the fastest rate since the economic boom of
the late 1990s.

The average hourly wage for workers below
management level – everyone from school bus drivers to stockbrokers –
rose 2.8 percent from October 2005 to October of this year, after being
adjusted for inflation, according to the Bureau of Labor Statistics. Only a year ago, it was falling by 1.5 percent.

Productivity has been rising for years, so it is comforting to see wages follow suit.  Every now and then the predictions of economic theory are correct.

Here is the full story.  The timing of this news could not be better, if you get my drift

1 Mike December 8, 2006 at 8:31 am

Aren’t these wage data to be treated with extreme caution? Even the BLS admits this series is seriously flawed. http://www.bls.gov/ces/cesww.htm. Gene Epstein devotes several chapters to it in his book.

That’s not meant to put a damper on the above news, just that I’ve been convinced to be skeptical of any news using this series.

2 Ian D-B December 8, 2006 at 9:43 am

It will take a heck of a lot more than one quarter or one year of good wage growth for labor’s share of income to move back to it’s previous level. While it’s good that wages are rising, it’s a bit premature to say it’s now obvious that the prediction that labor’s share of income is fixed in the long run is still true.

also, one quarter or year of good growth doesn’t really solve the larger issue the democrats point to — inequality.

3 joan December 8, 2006 at 1:57 pm

How likly is it that the fed will let wages rise 10% more than productivity growth (which is what it would take to catch up) before they see as inflationary and shut down the economy?

4 guest December 8, 2006 at 6:20 pm

“How likly is it that the fed will let wages rise 10% more than productivity growth (which is what it would take to catch up) before they see as inflationary and shut down the economy?”

That wouldn’t surprise me in the least. The root problem is that the Fed is a socialist institution, trying to centrally manage the most critical element of the economy, viz. time preference and interest rates. A free market banking system is sorely needed.

5 Anonymous October 14, 2008 at 4:10 am

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