Wage Inflation: Nope. Still Not Happening, Despite Claims to the Contrary

Alan Tonelson |

Well, at least it was fitting. On the same day (yesterday) that a second House vote gave a big boost to President Obama’s growth-, jobs-, and wages-killing trade agendathe Labor Department reported that in May, American wages after inflation fell sequentially for the second month this year. Moreover, they fared even worse in the trade-heavy manufacturing sector.

As I’ve previously noted, Labor’s real wage data attracts much less attention that its current-dollar wage data – no doubt because the latter comes out along with its breathlessly followed monthly jobs reports. But the inflation-adjusted figures are of course much more important, since they’re the best measure of whether American workers are keeping up with living costs. And let’s not forget that they keep putting the kibosh on the claim that U.S. labor costs are finally signaling job market healing.

The May monthly drop – 0.09 percent – wasn’t big, but it was the second such decrease of the calendar year. It also the second-worst figure (+2.23 percent) on a year-on-year basis – something economy watchers look at more closely – of 2015. Wage-inflation worry warts can observe that this May yearly improvement was the best rise since 2009. But it still leaves real wages for the entire private sector work force up a mere 2.03 percent since the current economic recovery technically began in mid-2009. (These broadest real wage figures don’t cover government workers, whose pay of course is set by political decisions, not by free market forces or any kind of economic fundamentals.)

As bad as overall private sector workers have fared wage-wise, they keep leaving their manufacturing counterparts in the dust. Real monthly wages in that sector dropped 0.38 percent from April to May, the biggest percentage decline since last April. Manufacturing pay stagnated so badly in 2014 that the May year-on-year increase of 1.73 percent was the best such rise of 2015. This improvement also dwarfs that of previous Mays. But despite this progress, manufacturing real wages are now down 1.03 percent during the recovery. Does that, by the way, sound to you like a sector enjoying a renaissance?

The new real wage figures also continue casting a gloomy shadow on the American automotive boom. This sector’s recovery rebound has consistently helped to lead manufacturing output’s strong comeback from a terrifying drop of about 20 percent in real terms during the recession. But the wage data is screaming that this revival has taken place largely on the backs of the automotive workers.

We’ll need to wait a month for the May figures that break out parts trends from vehicles trends, but the entire sector saw May real wages sink on a monthly basis by 0.85 percent – as with manufacturing in general, the biggest such fall-off since last April. But as was not the case with manufacturing generally, the 1.95 percent May-to-May increase was the lowest of 2015.

The longer term trends yield a classic good news-bad news story. The good news is that these May numbers amount to by far automotive’s best yearly performance since these trends started to be tracked in 2006. In fact, they’re only the second May-to-May increase. (Last May’s was the first.) The bad news, however, is that inflation-adjusted automotive wages are down 4.38 percent since the recovery’s technical mid-2009 onset. That’s a decline more than four times greater than that suffered by manufacturing workers generally.

It’s true that unionized automotive workers, especially for the Detroit assemblers, have also been receiving bonuses and profit-sharing proceeds, and that their wages and especially overall compensation on average vastly exceed that of their non-unionized fellows. But it’s also true that the Big Three were able to create two-tier wage structures after the recession led to government rescues of GM (GM) and Fiat-Chrysler ($FCAU), and that they’re going to argue for even greater “flexibility” in the new contract talks that begin next month.

Given Detroit’s ongoing option of sending even more production – and jobs – to Mexico and elsewhere abroad thanks to current trade agreements and policies, it’s difficult to expect an reversal of the automotive wage decline anytime soon, and manufacturing workers generally will remain under similar pressures. As for pay in the broader economy, it still looks clear that wage inflation claims should be greeted with tennis great John McEnroe’s classic officiating complaint: “You can’t be serious!”

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Symbol Name Price Change % Volume
FCAU Fiat Chrysler Automobiles N.V. 6.36 0.02 0.32 2,566,902
GM General Motors Company 31.75 -0.10 -0.31 8,077,594


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