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Researchers Say Real Wage Growth Since Recession is Slower Compared to Other Recoveries

jar-of-cashWhile the Bureau of Labor Statistics reported real wage growth of 22 cents year-over-year in February up to $10.54 per hour, researchers from the Federal Reserve Bank of Cleveland have conducted their own study and discovered that real wage growth and real compensation since the end of the recession are slower compared with other recoveries.

Researchers Filippo Occhino and Timothy Stehulak from the Cleveland Fed reported that real wage growth per hour - hourly earnings adjusted for inflation – has risen by only 0.5 percent since the end of the recession. While they say temporary factors may explain some of the slow wage growth, the researchers point to longer-term economic changes such as a slowdown in labor productivity (average growth of only 1.46 percent since 2004 and 0.85 percent since 2010) and a decline in labor's share of income as factors that played a large role in real wage growth depression.

Occhino and Stehulak said one reason for slow wage growth was slowly rising prices - though they don't completely account for the slow wage growth, since wages still rose slowly when the effect of inflation is subtracted. Real wages and real compensation grew by only 1.2 percent and 1.3 percent, respectively, in 2014. The real wage growth reported by Occhino and Stehulak was slightly more than half the growth that was reported by the BLS (2.1 percent) over nearly the same period.

"In fact, real wages have been rising slowly for several years," Occhino and Stehulak wrote. "Measuring from the end of the Great Recession, real wages have barely risen—real compensation per hour has risen only by 0.5 percent, much less than at this point in past recoveries. The lack of strong wage growth has been one factor that has held down the growth of income, consumer spending, and the recovery."

Economists such as Doug Duncan at Fannie Mae have said robust wage growth is necessary in order for the economy to recover and make his prediction come to pass that the economy will "drag housing upward" in 2015. Duncan and others remain optimistic for the economy - and for housing - in 2015 despite recent reports of an economic slowdown in Q1.

Looking ahead, the two Cleveland Fed researchers said, "Wage growth will likely pick up in the short run, as inflation rises and labor market conditions strengthen further. In the longer run, whether average real wage growth remains lower than in the past will depend on whether trend productivity growth continues to be low and whether other fundamental economic forces cause further declines in the labor share of income."

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.
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