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What’s real about wages? : A look at the increases and decreases in wages

Summary:
[embedded content] People have been talking about the evolution of wages. Some say they’re increasing, others say they’re decreasing. Who’s right? As is so often the case in economics, it depends. First let’s look at the graph above, which has four different indicators for wages. Three of them show a clear and steady upward trend. But one of them—the green line, which shows median weekly earnings—is starkly different. It could be because the median is different from the mean if the distribution of wages skews strongly at the top. Or it could be that people work less per week. Or it could be that it’s a real measure, whereas the others are nominal. [embedded content] The second graph corrects for this bias. The three nominal series are now real, after being divided by the consumer

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People have been talking about the evolution of wages. Some say they’re increasing, others say they’re decreasing. Who’s right? As is so often the case in economics, it depends. First let’s look at the graph above, which has four different indicators for wages. Three of them show a clear and steady upward trend. But one of them—the green line, which shows median weekly earnings—is starkly different. It could be because the median is different from the mean if the distribution of wages skews strongly at the top. Or it could be that people work less per week. Or it could be that it’s a real measure, whereas the others are nominal.

The second graph corrects for this bias. The three nominal series are now real, after being divided by the consumer price index so that general price increases aren’t reflected in the wage. Now all four series evolve along basically the same path. It’s clear that decreases can be frequent and sometimes long lasting. It’s also clear there’s a lot of variability, which means one should really wait for a good amount of data before reaching for any conclusions.

How these graphs were created: For the first graph, search FRED for “wage” and pick the four series. Limit the time period to the past 10 years. From the “Edit Graph” section, choose “Index” for the units with the default of 100 at the end of the last recession. Then click on “Apply to all.” For the second graph, add the CPI to each of the three nominal series, apply formula a/b, and again choose “Index” for the units.

Suggested by Christian Zimmermann.

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FRED Blog
The Federal Reserve Bank of St. Louis is the center of the Eighth District of the Federal Reserve System. This District includes Arkansas, eastern Missouri, southern Illinois and Indiana, western Kentucky and Tennessee, and northern Mississippi.

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