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Mmm...Inflation

Nominal wages up 2.5 percent in 2004, consumer price index up 2.7 percent, net wages negative 0.2 percent. Personally, a 2.5 percent nominal increase would be an improvement, though unlike most people my health insurance premiums didn't go up. What's really hit me in the pocketbook has been the price increases at the coffee place downstairs from the office. In broader terms, however, falling real wages is clearly an economic disaster and this ought to resolve all controversy among reasonable people as to whether the low unemployment rate makes up for the low employment/population ratio. If wages are falling, the labor market it bad, and it's as simple as that.

April 11, 2005 | Permalink

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» An Economic Disaster? from Deinonychus antirrhopus
Matthew Yglesias thinks that the nominal increase in wages of 2.5% and the increase in the inflation rate of 2.7% is an economic disaster. Of course, in reading the story we also find out that when benefits are factored in people actually did compensat... [Read More]

Tracked on Apr 11, 2005 3:42:43 PM

» Correct Measures from Catallarchy
Me: So which is a better measure - wages, which represent only a fraction of workers compensation, or total compensation, which represents the whole damn thing? Honest answers only, please. If total compensation is rising, the labor market is no... [Read More]

Tracked on Apr 11, 2005 8:54:45 PM

Comments

"In broader terms, however, falling real wages is clearly an economic disaster"

Well, if that's true, this economy has been a disaster for the bottom couple of quintiles for a generation now.

Posted by: Petey | Apr 11, 2005 2:22:36 PM

Well, no, it hasn't been quite as bad as that for the bottom quintiles when you measure individuals longitudinally. But, yes, it has been very bad for some categories of people.

Posted by: Matthew Yglesias | Apr 11, 2005 2:35:51 PM

"Well, no, it hasn't been quite as bad as that for the bottom quintiles when you measure individuals longitudinally"

After a quick Google search, I found data that terminates in '97...

Posted by: Petey | Apr 11, 2005 2:47:26 PM

Since housing prices are driven by wage growth and interest rates, watch out.

Posted by: Chad | Apr 11, 2005 3:02:13 PM

Hey, look on the bright side: Corporate profits leap 13.4%, biggest gain since 1987!

You commie pinko bastard...

Posted by: abb1 | Apr 11, 2005 3:07:22 PM

matt, so does this mean America is running out of pie pans?

Posted by: scott lewis | Apr 11, 2005 3:07:41 PM

Isn't it likely that it's rising health care costs that are mostly keeping real wages down?

Posted by: praktike | Apr 11, 2005 3:08:57 PM

Get your co-workers to pool their resources for a coffeemaker and some coffee.

Posted by: C.J.Colucci | Apr 11, 2005 3:11:22 PM

"Isn't it likely that it's rising health care costs that are mostly keeping real wages down?"

I don't think "mostly" is correct, but it's definitely a significant part of the reason.

Posted by: Petey | Apr 11, 2005 3:18:09 PM

Why would rising healthcare costs affect wages? Seems like two pretty much unrealted things.

Or, if your employer happens to pay a fixed percentage of your medical insurance cost, then your wages would actually rise with rising healthcare costs.

What am I missing here?

Posted by: abb1 | Apr 11, 2005 3:32:31 PM

abb1-
Isn't that employers are paying more for health insurance and hence have less left over for potential wage increases?

Posted by: washerdreyer | Apr 11, 2005 3:40:54 PM

"Isn't it"

Posted by: washerdreyer | Apr 11, 2005 3:42:09 PM

well, the bottom line is that employers consider health care part of the total compensation package, so when health care costs go up, the employer is less eager to give out raises, no?

Posted by: praktike | Apr 11, 2005 3:43:40 PM

I'm guessing that this still doesn't mean we should go for price indexing over wage indexing.

Posted by: Ethical Werewolf | Apr 11, 2005 3:44:36 PM

Falling wages are good for big businesses, and that's exactly what Bush and Co. want.

Posted by: roguerunner | Apr 11, 2005 3:51:37 PM

matt, why u using greenspan's 2.7% core inflation rate. dont fall for it buddy. inflation is the broad price measure, which shd include food, energy, healthcare, a public school education, the price of your home, etc. the world knows the real inflation rate is much higher than even the gross CPI of 3.5%. much of greenspan's career has involved devising 'hide the ball' formulations useful in disguising the dramatic plunge in real incomes for the working and middle class over the last 25 years

Posted by: scorpio | Apr 11, 2005 3:54:57 PM

Why would rising healthcare costs affect wages?

Rising healthcare costs are an inflation driver, so more healthcare costs, all other things being equal, means lower real wages.

Posted by: cmdicely | Apr 11, 2005 3:57:15 PM

matt, why u using greenspan's 2.7% core inflation rate.

There is a rhetorical advantage to using the numbers most favorable to your opponent to make your case when they do, in fact, make your case, since it shuts down one avenue of side-quibbling, the argument over supporting numbers.

Posted by: cmdicely | Apr 11, 2005 3:59:19 PM

I thought all your benefits are accounted for in your 'wages'. I might be wrong, but that would seem odd. So, if your employer stopped paying for your health insurance and instead added that amount to your monthly check - that would be a wage increase? That would be odd.

Posted by: abb1 | Apr 11, 2005 4:04:11 PM

"I thought all your benefits are accounted for in your 'wages'."

No.

Posted by: Petey | Apr 11, 2005 4:07:59 PM

Measuring inflation is more art than science, and there are just as many people arguing that 2.7% overstates inflation as there are people arguing that it understates inflation.

Here's one example of an arugment that conventional inflation measures are too high:
http://www.nytimes.com/2005/03/24/business/24scene.html

It's a complicated issue, but most of the arguments that official measures of inflation are too high are essentially about the inadequacy of accounting for quality improvements. I certainly wouldn't agree that 2.7% is the figure most generous to "the other side."

Posted by: Xavier | Apr 11, 2005 4:10:58 PM

health care benefits aren't taxed, abb1.

Posted by: praktike | Apr 11, 2005 4:23:09 PM

I know, Praktike, they are not taxed as a part of your income, but they are still a part of the compensation your employer pays to you for your work, which I though what's called 'wages'.

Posted by: abb1 | Apr 11, 2005 4:41:47 PM

Far from being a "disaster" in their eyes, this state of affairs suits the Republicans and their patrons just fine. They get to pay their workers less, and scared workers have no bargaining power.

Posted by: Rebecca Allen, PhD | Apr 11, 2005 4:46:45 PM

"but they are still a part of the compensation your employer pays to you for your work, which I though what's called 'wages'."

Your total compensation is termed 'wages and benefits'.

Posted by: Petey | Apr 11, 2005 4:50:59 PM

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