On its surface, the Department of Labor’s report on February employment may seem troubling. The country added only 20,000 jobs last month, well below what had been added in earlier months. Thanks in part to the devastation the recession wrought on employment a decade ago, we’ve taken to looking at jobs numbers as a barometer of the economy, meaning that a 20,000-job gain can look worrisome.
There is a point, though, at which the country will theoretically approach full employment — everyone who wants a job can get one. Our economy is based on supply and demand, as you likely learned in middle school, but that works for jobs, too. Because so many people are employed, the supply of workers is low, and employers are having trouble filling jobs. So employers will theoretically increase demand for the jobs they want to fill: by raising wages.
If we look at how hourly earnings have tracked over time, it looks like a fairly steady increase.
(The government breaks out hourly earnings into two groups: overall earnings and earnings for production and nonsupervisory workers. We’ve highlighted the latter group above, since it’s a better measure of how wages are changing for working-class Americans.)
The above graph, showing a slow increase, is deceptive as a way to consider how the numbers have changed. So let’s instead look more directly at the change that’s occurred.
If we compare hourly earnings in each month to earnings the month before, we see a dramatic change over the past year. Over the course of 2017, hourly earnings for nonsupervisory workers increased an average of 2.3 percent monthly. Over the course of 2018, it was 2.9 percent. This year, the average has been 3.4 percent, as it was in February.
That seems like good news, but we need to overlay another metric: inflation.
The government has another metric that it uses called real hourly earnings. It’s the same earnings data as above, but adjusted to inflation (specifically, the consumer price index). This was the metric that has been problematic for some time, because earnings were barely keeping up with inflation — meaning that real earnings were fairly flat.
From January 2008 to January 2018, hourly earnings increased by 26 percent, but earnings adjusted for inflation only increased by about 7 percent.
We don’t have data on the CPI figure for February, but if we assume that it increases on pace with the past year, we get an estimated real hourly earnings figure of $10.91. But, again, let’s instead consider the year-over-year change, comparing that February estimate to the real hourly earnings in February 2018, etc.
It looks like this.
That spike at the end? That’s good news, showing that earnings are increasing much faster relative to inflation than they had been.
Why is this happening? President Trump would likely point to the December 2017 tax cuts, which was meant to boost wages by giving companies more money to invest in workers. (And to buy back stock, which is where a lot of it went.)
The spike above began in July, several months after those cuts went into effect. For the year before that, the consumer price index grew, on average, by about 0.58 points a month. Since July, it has grown an average of 0.22 points a month. Slower inflation coupled with wage growth means a faster-growing real earnings figure.
But who’s complaining? The spending power of workers’ wages is growing quickly. We may not be at full employment, but people are working, and they can buy more with what they earn. It’s hard to argue with that.