What will happen with real wages?

by on December 31, 2010 at 6:16 am in Economics | Permalink

Put aside the rise of China, and think back to when the three major economies were the United States, Japan, and Germany.

Japan has seen a continuing decline in real wages.  The German data are harder to assess, but we have seen periods of wage declines, a lot of wage stagnation, and arguably real wages have declined relative to education levels in the work force.

If we look at U.S. real wages over the next ten years, what is the chance that they rise?

Sean Brocklebank December 31, 2010 at 2:37 am

Any chance of getting a source on the Japanese decline?

E. Barandiaran December 31, 2010 at 2:49 am

I assume that when you talk about real wages you refer to what Karl Brenke (the author of the paper on German data) calls compensation of employees. As shown by the German data, differences between compensation of employees, gross wages and net wages are large and vary greatly over time. Do you have similar data for the three countries in the past 50 years?

CK December 31, 2010 at 5:22 am

The probability that real wages will fall is 100% Or conversely that they will rise is 0% for large values of 0.

The probability that real spending power will fall depends on how rapidly prices decline.

Ilya December 31, 2010 at 6:51 am

But Martin Feldstein has written that if you use the producer price index, real wages have in fact been rising in the US no differently than before. No?

Keith Eubanks December 31, 2010 at 8:09 am

It depends. But aren't falling real wages the objective? I mean what would one expect from QE1, 2, 3, 4, … ? For most, wages will be the last price to rise. For the lucky few, the investment bankers, commodity producers and speculators, etc., it will be a boon.

dg December 31, 2010 at 11:06 am

I am always amused by discussion of long-term trends in real wages. Since wages are a major component of inflation, over the long run real wages must remain constant, barring a transformative change in productivity such as the Industrial Revolution. It is time this particular canard of the Left be put to rest.

TGGP December 31, 2010 at 12:53 pm

foosion, name a country that spends more per capita on education than the U.S. Other than Luxembourg.

Yancey Ward December 31, 2010 at 5:16 pm

Just how do we account for wages? How does one account for the value of Social Security or Medicare? How about pensions, 401Ks, time off, etc.? What is the methodology?

Paul N January 1, 2011 at 8:29 pm

It depends entirely on tax rates. If the highest marginal rate goes up a lot, real wages will increase.

Master of None January 4, 2011 at 6:55 am

And… if real wages do not rise, what is the liklihood that real home prices (~50% of CPI) rise?

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