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Wednesday, June 18, 2014 2:02 AM


Wages vs. Real Wages Over Time: How the Fed Helped Destroy the Middle Class in Pictures


Wages have seemingly been on a tear since 1965 having risen from $2.5 per hour in February of 1964 to $20.5 per hour in May of 2014. A couple charts will show what I mean.

Average Hourly Earnings of Production and NonSupervisory Private Employees



click on any chart for sharper image

Average Hourly Earnings of All Private Employees



Data for all private employees only goes back to March of 2006.

Real Earnings

On Monday, a BLS Real Earnings report showed:

  • Real average hourly earnings for all private employees fell 0.2 percent from April to May. This result stems from a 0.2 percent increase in the average hourly earnings being more than offset by a 0.4 percent increase in the Consumer Price Index for All Urban Consumers (CPI-U).
  • For all private employees, real average hourly earnings fell 0.1 percent, seasonally adjusted, from May 2013 to May 2014.
  • Real average hourly earnings for production and nonsupervisory private employees fell 0.1 percent from April to May, seasonally adjusted. This result stems from a 0.1 percent increase in average hourly earnings being more than offset by a 0.3 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
  • Real average hourly earnings for production and nonsupervisory private employees rose 0.3 percent, seasonally adjusted, from May 2013 to May 2014.

"Real" means adjusted for price inflation. The BLS uses CPI-U as the deflator for all private employees, and CPI-W as the deflator for production and nonsupervisory private employees.

Wages vs. Prices

Neither the BLS nor Fred (the St. Louis Fed data repository) shows real wages over time, at least directly. But the data is there. It's just a matter of putting the charts together with the data they provide.

Following BLS methodology, let's compare year-over year growth in CPI-W with year-over-year growth in average hourly earnings for production and nonsupervisory private employees.



Also following BLS methodology here is a chart of year-over-year earnings growth of all private employees compared to year-over-year growth in CPI-U.



Real Wages Over Time

The two preceding charts may seem confusing. But if we subtract growth in CPI from growth in wages, we can determine "real" wage growth, a measure of how far wages have risen vs. prices.

Real Wages All Private Employees



Real Wages Production and Nonsupervisory Private Employees



Damning Charts

The preceding chart looks pretty damning, but things are far worse. The CPI does not include sales tax hikes, the prices of homes, property taxes, or fees of all types.

For those with kids in school, the CPI will seem like a complete joke.

All things considered, the average person would be far better off with wages at $2.5 per hour and constant prices and taxes than they are today.

A Political Look

Doug Short at Advisor Perspectives produced the following chart following our discussion of Tuesday's BLS data release.



click on chart for sharper image

Congratulations!

Congratulations to Republicans and Democrats alike. On a chained-dollar adjusted basis (but not counting sales taxes, property taxes, fees, home prices, etc.), real average hourly earnings are back to a level seen in 1968.

Counting taxes and fees, the average worker makes far less now.

Demise of the Middle Class

The Fed wants 2% inflation. It achieved that (and then some) especially if we add in the price of houses and various taxes.

Who benefited?

The answer is Wall Street, corporate CEOs, banks, public unions, and the already wealthy.

The demise of the middle class is a direct result of fractional reserve lending, inflation tactics of central banks, war-mongering and other unfunded Congressional legislation, all exacerbated when Nixon closed the gold window, allowing unlimited printing and Congressional deficit spending.

Some suggest robots and corporations are to blame for the demise of the middle class. The notion is absurd.

Instead of pointing the finger at the real problem, the Fed blames robots and Democrats blame corporations and Republicans. Meanwhile, Republicans and Democrats alike fund wars and other activities via the printing press that the US cannot possibly afford.

For further discussion of the demise of the middle class and the role president Nixon and Congress played, please see Time Lapse Image of Growing US Political Polarization; Root Cause of the Shrinking Middle Class

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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