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News from EPI NewsFlash: Real Wage Gains…Nice While They Lasted (And They Didn’t Last Long)


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NewsFlash: June 15, 2007

Real wage gains…Nice while they lasted

(And they didn’t last long)

by Jared Bernstein, Senior Economist

Due to higher inflation and slightly slower wage growth, both the real (i.e., inflation-adjusted) hourly and weekly earnings of most workers have been falling for the past few months.  In fact, going back to early 2004, with the exception of a few strong months last fall, real wages have fallen fairly consistently. 

As shown in the graph below, hourly and weekly wages for the 80% of the workforce holding non-managerial jobs are trending down so far this year.   Thanks to a few months of very mild inflation readings last fall wages grew steeply, but only for two months.  Most recently, inflation has been outpacing wage growth on a monthly basis, though given the very strong real growth in the fall; wages remain above their levels of one year ago.

Despite the fact that unemployment is relatively low, nominal hourly wage growth has decelerated, from an annual rate of 4.3% last December to 3.8% last month.  Meanwhile, higher energy costs have led to faster price growth, and the result is falling real wages for most workers.

While financial markets and the Federal Reserve will applaud the fact that core inflation—excluding energy and food costs—remains tame, it’s important not to lose sight of the fact that thus far in 2007, working families are facing rising energy and food costs with a shrinking paycheck.

Chart 1: Real hourly and weekly earnings, Nov01-May07

Source: BLS, earnings deflated by CPI-U

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