Nominal wages generally increase, but the picture is mixed for real wages. The green line in the top graph shows real wage growth, which is negative a fair amount of the time. Bursts in inflation can counteract the usually small increases in nominal wages. In fact, the strong growth of real wages at the end of the past recession is mostly due to a short episode of deflation.
But wages aren’t the whole story. A job usually also involves other types of compensation, such as the employer’s contribution to retirement pensions, health and life insurance, paid vacation and other leave, and any taxes the employer pays on these benefits. These benefits are now a substantial part of the cost of an employee, and they appear to be growing. The top graph shows that labor compensation growth is frequently higher than real wage growth. We can make this point more clearly by using index values: In the bottom graph, we set both series at 100 in 1970 and let them run. Real compensation growth is significantly higher: the 60% increase looks much better than the 3% increase for real wages.
This is what business has been arguing for some time — look at the overall compensation rate rather than the wage rate. The problem is that consumer spending, debt service and expectations regarding future income depend on the wage rate.
Let me ask you if "real wages" include the wages for the financial sector which provides no real benefit to the real economy and if real compensation includes all of the compensation for the financial system which has exploded due to the financial engineering going on on Wall Street. The reason I as that is I just don't see the big increase in wages and benefits for people I am around. In fact, the people I talk with tell of hours being cut to part time hours so that their benefits can be cut back, and of their hours being increased when they are on straight time. If wages are increasing so much why am I not hearing about it? Any ideas?
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