Nick Bunker over at equitable growth wonders what’s the deal with US wage growth, citing the absence of “expected” growth given the unemployment rate. That is, he’s wondering why the “Wage Phillip’s Curve” isn’t holding. Here’s an illustration using the most commonly cited wage figure, Average Hourly Earnings (AHE):
I don’t think this is too surprising. Here’s wage growth regressed against unemployment rate going back as far as the BLS data go:
Not impressed? Me neither. However, over at the Atlanta Fed’s macroblog, there’s an interesting post about their so-called wage growth tracker (WGT). Rather than looking at average hourly wages in aggregate and tracking the growth in that figure, they use the Fed’s Current Population Survey to track wages of people who had a job the last time they were surveyed. The data go back to 1997. Here’s that regression:
Not bad. And just to make sure we’re not cherry-picking the data, here’s a regression for the 1997-2016 period using the data from the first regression:
So, it’s a little better than the first regression, but not nearly as good of a fit as the WGT data. Let’s now replace the AHE data in the first chart with the WGT and see what happens:
Look at that! Finally, I ran Granger causality on the WGT and AHE series and there’s evidence below the 5% level that WGT Granger-causes AHE but not that AHE Granger-causes WGT.
So, what’s the deal with wages? We might induce that if unemployment keeps falling then wages of those already employed will keep rising and this will raise the average rate of wages as popularly measured. The next question is how the Fed will react to the coming wage growth, but that’s another post.