By Tory Newmyer / The Washington Post
Republicans got another economic headline to crow about Tuesday: The Labor Department reported workers enjoyed their biggest pay raise in a decade over the 12 months that ended in June.
Here was President Donald Trump on Twitter: “Worker pay rate hits highest level since 2008.”
And House Speaker Paul Ryan, R-Wis., also on Twitter: “Great news. Worker pay rates have risen to the highest level since 2008. This morning’s BLS—gov report shows that worker compensation has been on a steady rise over the past year and a half.”
But the result is mostly a wash for workers. Rising consumer prices are all but wiping out the gains in their paychecks. The quarterly report – known as the employment cost index – measures trends in both wages and benefits by tracking about 6,600 private businesses and 1,400 state and local governments. It rose 2.8 percent over the previous year, the biggest such increase since the third quarter of 2008.
Yet inflation is also heating up, meaning that workers noting bumps in their paychecks will also find their money isn’t going as far. Indeed, the consumer price index rose 2.9 percent in June from a year earlier, a six-year high. (The Federal Reserve’s preferred measure of inflation – the core PCE price index, which excludes volatile food and energy prices – climbed 1.9 percent in June on a year-on-year basis.)
“There’s a little bit of good news here, but we should be careful not to exaggerate it,” says Harry Holzer, a Georgetown University professor of public policy and former chief economist for the Labor Department. “We’re seeing a slow, upward creep in these numbers. On the other hand, they’re just barely ahead of the inflation rate right now, and that’s not what you’d expect with unemployment at 4 percent.”
Here was former Obama administration economist Jared Bernstein’s look at the latest data, using the top-line consumer price index to measure inflation: “Here’s the up-to-date real wage story based on new data out this AM: slow wage growth meets faster price growth such that real wages are now flat.”
The results suggest that an economy firing on most cylinders is still failing to produce the kind of broad-based gains that Republicans have pledged to deliver through a sweeping tax cut and deregulation.
That could change: Some see more meaningful wage gains ahead as whatever slack that remains in the labor market works its way out. Tuesday’s report offered “another sign that the labor markets are tightening and that compensation is going up as employers compete for workers,” says Douglas Holtz-Eakin, president of the American Action Forum.
Gary Burtless, an economist at the Brookings Institution, says the steady pickup in employment present a brighter picture than relatively meager wage gains. “The main thing is it’s easier to find a job,” he says. “So if you don’t like the job you have, you can quit, and the penalty is much lower than you would have faced seven or eight years ago when you might have had a long search for the next one.”
And Holtz-Eakin says it is too soon to judge whether last year’s tax cut has yielded the kind of business investment that improves productivity, which measures worker efficiency. Productivity growth has lagged since the recession, for reasons economists don’t entirely understand. But most consider improving it a key to unlocking stronger wage growth: For most of the last century, the two climbed in tandem. Republicans pushed their tax cuts in part by arguing businesses would plow the money they saved into new technology, equipment, and training, laying the foundation for a productivity surge that would spread prosperity widely.
The early record suggests that’s not happening. Instead, companies are directing much if not most of their tax-cut windfalls to executives and shareholders. As Politico noted this week, public companies announced more than $600 billion in stock repurchases in the first half of the year, more than in any entire year prior.
It continues a recent trend. A new study by the National Employment Law Project found from 2015 to 2017, the restaurant industry spent 140 percent of its profits on buybacks, “meaning that it borrowed or dipped into its cash allowances to purchase the shares,”The Atlantic’s Annie Lowrey reports. “How much might workers have benefited if companies had devoted their financial resources to them rather than to shareholders? Lowe’s, CVS, and Home Depot could have provided each of their workers a raise of $18,000 a year, the report found. Starbucks could have given each of its employees $7,000 a year, and McDonald’s could have given $4,000 to each of its nearly 2 million employees.”
At the moment, workers in some industries are faring better than others. Andrew Chamberlain, an economist at recruiting site Glassdoor, tells me those in tech jobs are seeing faster wage gains, as are those in lower-end retail jobs, perhaps surprisingly considering the sector’s struggles. “Employers are just running out of people to hire, and it’s almost impossible to get people to move for those jobs,” he says. Those in manufacturing, telecom, and media are seeing some of the weakest pay raises, Glassdoor data shows.
Pay bumps are also stronger in big coastal cities – San Francisco, Seattle, Los Angeles and New York – than in other top metro areas, Chamberlain says. But true to the trend, sharply rising costs of living in those places are swamping the gains.
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