The Cleveland Fed is out with a study today checking to see if wage inflation predictably leads core PCE inflation.
They don’t find anything:
Our analysis finds that wages and prices tend to move together, complicating efforts to disentangle cause and effect.
The problem is they’ve too-narrowly defined wage inflation and neglected to adjust for all the skews over time. Here’s what they looked at:
- Average hourly earnings of production and nonsupervisory employees on private nonfarm payrolls.
- Compensation per hour in the nonfarm business sector. This broader measure of compensation includes not only wages but also bonuses and benefits.
- The Employment Cost Index for private industry workers. The ECI captures wages, salaries, and benefit costs.
What all these measures miss is a look at total earnings. When people talk about hourly wages it’s a total misnomer, what they really mean is total salary. Few non-unionized jobs in 2014 stick to a 40-hour workweek or pay proper overtime. That makes the per-hour wage rate almost irrelevant. Meanwhile, the current trend of cutting workers to below the Obamacare threshold of 28-hours is essentially non-reflected.
Here are the three measures they should be looking at:
- Real median current household earnings
- Expected total net income in the year ahead
- Expected future wage increases
