On March 12, 2015, Tyler Durden writes on Zero Hedge:
One of the biggest conundrums, one that has profound monetary policy implications, and that has been stumping the Fed for the past year is how can it be possible that with 5.5% unemployment there is virtually no wage growth. The mystery only deepens when the Fed listens to so-called economist experts who tell it wage growth is imminent, if not here already, and it is merely not being captured by the various data series. Friday’s jobs data merely confirmed that since the Lehman crash there has been virtually no real wage growth, as the increase in nominal average hourly earnings is right on top of the Fed’s inflation target, instead of where Yellen would like to see it: somewhere in the vicinity of 4%.
And yet, when sophisticated, erudite pundits, usually from a paid leadership position, look at the data, they say wages are growing.
How is that possible?
Actually, the mystery only deepens when one looks not at the wages for the set of All Employees as shown above, but for the 80% or so classified by the BLS as “production and non-supervisory employees” who “account for approximately four-fifths of the total employment on private nonfarm payrolls.” The Bureau of Labor Statistics defines them as follows:
“Production and related employees include working supervisors and all nonsupervisory employees (including group leaders and trainees) engaged in fabricating, processing, assembling, inspecting, receiving, storing, handling, packing, warehousing, shipping, trucking, hauling, maintenance, repair, janitorial, guard services, product development, auxiliary production for plant’s own use (for example, power plant), recordkeeping, and other services closely associated with the above production operations.
“Nonsupervisory employees include those individuals in private, service-providing industries who are not above the working-supervisor level. This group includes individuals such as office and clerical workers, repairers, salespersons, operators, drivers, physicians, lawyers, accountants, nurses, social workers, research aides, teachers, drafters, photographers, beauticians, musicians, restaurant workers, custodial workers, attendants, line installers and repairers, laborers, janitors, guards, and other employees at similar occupational levels whose services are closely associated with those of the employees listed.”
The BLS adds that “these groups account for approximately four-fifths of the total employment on private nonfarm payrolls.” The remainder is the opposite: those which the LA Times defines as “primarily employed to direct, supervise, or plan the work of others.”
In other words “working-supervisors”, bosses, and other job “leaders.”
The important math: production and non-supervisory employees, those not in leadership positions, represent 80% of the employed labor force. This is important when looking at the next chart which show the annual increases in hourly earnings just for production and nonsupervisory employees.
It is as this point that we ask that all economists avert their eyes, because it gets ugly:
As the BLS reports, not only is the annual wage growth of 80% of the work force not growing, but it is in fact collapsing to the lowest levels since the Lehman crisis!
But if the wages of the non-working supervisory 80% of the labor population are tumbling while all wages are flat that must mean that the wages of America’s supervisors, aka “bosses” are…
Bingo.
The chart below shows what the implied annual change in supervisor hourly earnings has been since the start of the second Great Depression. Note the recent differences with the chart immediately above.
And there, ladies and gentlemen, is your soaring wage growth: all of it going straight into the pockets of those lucky 20% of America’s workers who are there to give orders, to wear business suits, and to sound important.
Yes – wages are growing, for those who least need said wage growth, the “people in charge.”
In other words, precisely all those economists who day after day repeat that, damn what reality says, wages are rising.
Well, guess what: they are absolutely right… when referring to their own wages! It is the small matter of everyone else’s wages that they are dead wrong about.
So the next time anyone asks why there is no broad-based pick up in consumer retail spending across the entire population, just show them the above charts.
And with that, the mysterious case of America’s missing wage growth is now closed.
Source: BLS, St. Louis Fed
http://www.zerohedge.com/news/2015-03-11/mystery-americas-missing-wage-growth-has-been-solved
To me it is absolutely unbelievable the the Federal Reserve Board, the academics, and the politicians are stumped as to how it is possible that with 5.5 percent (statistical rather than actual) unemployment there is virtually no wage growth.
Those in production and non-supervisory jobs, which represent 80 percent or four-fifts of the total population employed in the private sector have seen their wages stagnate ever since the Great Repression, while those employed primarily to direct, supervise, or plan the work of others has increased. The conclusion arrived at by the author of this article is that “soaring wage growth” is limited to “those lucky 20 percent of America’s workers who are there to give orders, to wear business suits, and to sound important.”
This is certainly a simplistic and shallow conclusion. Put into another context, which represents the economic of reality, the worth of labor is constantly being devalued along with displacing labor workers entirely as a result of tectonic shifts in the technologies of production that is shifting production from a labor-intensive state to a non-human-intensive state. This means that technological invention and innovation is constantly functioning to create “tools” and “machines” to reduce toil, enable otherwise impossible production, create new highly automated industries, and significantly change the way in which products and services are produced from labor intensive to capital intensive. At the helm of this transformation are the workers who are employed primarily to invent and innovate, as well as direct, supervise, or plan the work of others. Unfortunately no one is looking at the “invisible ownership” of the “tools” that are being created and that represent the core of this transformation.
Our scientists, engineers, and executive managers (those in the 20 percent category) who are not owners themselves of otherwise narrowly owned corporations growing the economy, except for those in the highest employed positions, are encouraged by the ownership class to work to destroy employment by making the capital “worker” owner more productive by employing evermore productive “tools” and “machines.” How much employment can be destroyed by substituting “machines” for people is a measure of their success––always focused on producing at the lowest cost. Only the people who already own productive capital are the beneficiaries of their work, as they systematically concentrate more and more capital ownership in their stationary 1 percent ranks.
With more people in search of fewer jobs that pay well, or without the necessary skills, there is no market necessity to raise wages. Yet the 1 percent, who are the employers, are not the people who do the overwhelming consuming. The result is the consumer populous is not able to get the money to buy the products and services produced as a result of substituting machines for people. And yet you can’t have mass production without mass human consumption made possible by “customers with money.” It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being.
