Real Wages: Putting Inflation Into Perspective

How Much Damage Has Inflation Really Done?

We need to take a moment to correct one of the more obnoxious lies emanating from the current Regime regarding the US economy: the “growth” of real wages in this country, and examine how inflation is inflicting pain on just about everyone.

When it comes to the economy, Dementia Joe’s handlers have a positive talent for tweeting out things that are not merely false, but downright delusional. One of their latest masterpieces of miscommunication is this bit of fiction from the other day bragging about wage growth in the US.

One small problem: real wages are not higher. In particular, wages are not higher during the tenure of this Administration.

According to the Bureau of Labor Statistics, there has been some growth in wages. In the July Real Earnings Summary, real wages were calculated to have grown 0.2% from May to June, a result of nominal wages rising 0.4% and consumer price inflation printing at 0.2%.

Real average hourly earnings for all employees increased 0.2 percent from May to June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from an increase of 0.4 percent in average hourly earnings combined with an increase of 0.2 percent in the Consumer Price Index for All Urban Consumers (CPI-U).

However, even the BLS data does not show an abundance of growth in real wages—wages adjusted for inflation.

When we look at the changes in average hourly wages

¹

since January, 2021 (since Dementia Joe took office), adjusted for inflation using both the headline Consumer Price Index

²

and the “core” Index less food and energy

³

, we can immediately see the problem with his tweet.

While nominal wages have trended up modestly since January of 2021, real wages have trended down. The extent of the decline is readily seen if we focus on just the real wages adjusted for inflation.

I will pause here for a quick note about methodology: “Real” wages—as with all “real” economic data—are computed by taking the nominal wage data and removing the effects of inflation using the Consumer Price Index, thus converting the “current dollar” nominal wages into “constant dollar” real wages.

The earnings series presented in this release are derived from the Bureau of Labor Statistics’ Current Employment Statistics (CES) survey, a monthly establishment survey of employment, payroll, and hours. The deflators used for constant-dollar earnings series presented in this release come from the Consumer Price Indexes Program. The Consumer Price Index for All Urban Consumers (CPI-U) is used to deflate earnings for the all employees series, while the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to deflate earnings for the production and nonsupervisory employees series.

The conversion formula for any element in the nominal earnings data to be converted is as follows:

Real Hourly Wages = (Nominal Hourly Wages ÷ Current CPI) × Base CPI

The BLS uses the base period for the Consumer Price Index itself (1984) for calculating real wage levels and growth. However, one can use any period within the index as the base period, as the general deflator formula is as follows:

CPI Deflator = Current CPI ÷ Base CPI

I am using January 2020, as the base period, as that is right before the 2020 Pandemic Panic Recession.

This, incidentally, is the mathematics the Federal Reserve Economic Data (FRED) system uses for generating graphs with data sets indexed to a base period.

Whether we are adjusting for overall inflation or just the core inflation rate with food and energy prices removed, wages are still as much as $0.88 lower in June, 2023, than in January, 2021, using January 2020 as the base period.

We should note that when the COVID “pandemic” began, Donald Trump was still President of the United States. Dementia Joe did not occupy the Oval Office until January of 2021—the start date for these graphs and computations. All of the gains about which Dementia Joe is bragging occurred before he took office.

Again, focusing on just the real wages, the differential apppears more readily.

The only wage growth since the pandemic took place during the Trump Administration. During Dementia Joe’s Reign of Error, wages have notched significant declines both year-on-year and month-on-month.

Cumulatively, since January of 2021 nominal hourly wages have risen 12.2%, while real wages have fallen 3% measured against headline inflation and 1.6% measured against core inflation.

Under the current regime, people have been earning progressively less and less per hour of labor. Welcome to “Bidenomics.”

The decline in real wages is not at all surprising. Inflation by definition means a decline in real wages, as rising prices erode the purchasing power of the paycheck.

Still, we must also remember that inflation is not merely rising prices but also distorting prices. Inflation is price levels for various goods and services becoming unbalanced and in an extended state of disequilibrium. When inflation is low and the distortions minor, we tend not to notice the price shifts quite so much, but when inflation is high, and the distortions major, we notice every price shift we encounter.

As a consequence, if we look at price increases since the 2007-2009 recession, we might be forgiven for thinking that wages were growing relative to prices, as they were above the various consumer price indices for most of that period.

By and large, according to the data, wages largely kept pace or even exceeded the major consumer price inflation categories when viewed from the end of the Great Recession in 2009.

However, if we shift focus closer to today, since the end of the 2020 Pandemic Panic Recession, we see that wages have not kept pace at all with major consumer price inflation categories—particularly food, shelter, and household energy.

Putting this in terms of Presidential administrations, during Barak Obama’s second term, real wages rose a bit more than most consumer price inflation categories, with the notable exception being shelter.

However, real wages during the Trump administration did better, keeping pace with shelter prices better and rising more significantly against core inflation than under Obama.

Note, this is true even if we cut off the comparison at the end of 2019, before the Pandemic Panic Recession.

Then we come to the present regime. Dementia Joe’s track record on wages…sucks.

Every category where real wages outperformed under both Trump and Obama, real wages have underperformed since.

Every.

Single.

Category.

We can see this quite clearly if we strip out the aggregate consumer price and core consumer price indices, and focus on just the indices for Food, Household Energy, and Shelter.

Obama:

Trump:

Dementia Joe:

The regime’s track record on wages is made even more apparent when we consider the monthly percentage changes—wage growth has been outpaced by price inflation for the bulk of the current regime.

For 21 straight months—June 2021 through February 2023—monthly food price inflation outpaced wage growth:

For the past 15 months, shelter price inflation has outpaced wage growth.

For 20 of the 30 months in Dementia Joe’s Reign of Error, energy price inflation has outpaced wage growth.

Whenever Dementia Joe or any of his proxies even attempt to speak of “Bidenomics” as any sort of economic success, the most fitting response is to quote the character Fletcher from “The Outlaw Josey Wales” (superbly played by character actor John Vernon): “Don’t piss down my back and tell me it’s raining.”

Inflation has been a very real thing in the US economy. It has been a very real force, and it has not been a good force.

Inflation has made food more expensive. Inflation has made shelter more expensive. Inflation has made keeping the lights on more expensive.

Inflation has reduced people’s paychecks on average by anywhere from 1.6% to 3% since January 2021.

This is what the “experts” in government are calling successful economic policy—people earn less, pay more, and buy less as a result.

1. U.S. Bureau of Labor Statistics, Average Hourly Earnings of All Employees, Total Private [CES0500000003], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CES0500000003, July 20, 2023

2. U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items in U.S. City Average [CPIAUCSL], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CPIAUCSL, July 20, 2023.

3. U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items Less Food and Energy in U.S. City Average [CPILFESL], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CPILFESL, July 20, 2023.