Friday, August 28, 2009

The Wage Freefall

Tom Lindmark commented (in response to my post on private and government wages):

I thought the chart on total compensation was even more interesting.

I agree. This is not only more interesting, but unfortunately also more frightening.

Source: BEA


Reader Dan Buckstaff makes the keen observations that:
This appears to be some kind of nominal number, rather than real wages. There's no way that real wages gained that much per year in the 1970s. And the annual gain since 1980 reflects decreasing inflation.

Nonetheless, the recent plummet is alarming, especially relative to an indebted consumer.
And he is absolutely correct (and I should have made that more clear). We have seen real declines of similar magnitude during the 1970's, but never in nominal terms. Below is a chart real wages over that same time frame.

The good news is that in real per capita terms, it doesn't look as bad. The bad news is that in a nation as indebted as the U.S., nominal is important. Not in terms of earnings power for new purchases, but to service existing debt loads.