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Posts Tagged ‘recessions’

A Piketty Moment

October 25, 2016 6 comments

Update (10/27): Comments rightly pointed to different deflators for the two series. I added a figure to account for this (thanks!)

Via Mark Thoma I read an interesting Atalanta Fed Comment about their wage tracker, asking whether the recent pickup of wages in the US is robust or not.

The first thing that came to my mind is that we’d need a robust and sustained increase, in order to make up for lost ground, so I looked for longer time series in Fred, and here is what I got

2016_10_26_ineq_us_1947_2016

This yet another (and hardly original) proof of the regime change that occurred in the 1970s, well documented by Piketty. Before then, US productivity (output per hour) and compensation per hour  roughly grew together. Since the 1970s, the picture is brutally different, and widely discussed by people who are orders of magnitude more competent than me.

[Part added 10/27: Following comments to the original post, I added real compensation defled with the GDP deflator.  While this does not account for purchasing power changes, it is more directly comparable with real output. Here is the result:

2016_10_26_ineq_us_1947_2016_update

The commentators were right, the divergence starts somewhat later, in the early 1980s. This makes it less of a Piketty moment, while leaving the broad picture unchanged.]

Next, I tried to ask whether it is better for wage earners, in this generally gloomy picture, to be in a recession or in a boom. I computed the difference between productivity (output per hour) and wages (compensation per hour), and averaged it for NBER recession and expansion periods (subperiods are totally arbitrary. i wanted the last boom and bust to be in a single row). Here is the table:

Yearly Average Difference Between Changes in Productivity and in Wages
In Recessions In Expansions Overall % of Quarters in Recession
1947-2016 1.51% 0.40% 0.57% 15%
1947-1970 1.62% -0.14% 0.19% 19%
1970-2016 1.42% 0.67% 0.76% 13%
1980-1992 0.64% 0.84% 0.81% 17%
1993-2000 N/A 0.68% 0.68% 0%
2001-2008Q1 4.07% 1.10% 1.41% 10%
2008Q2-2016Q2 2.17% 0.12% 0.49% 18%
Source: Fred (my calculations)
Compensation: Nonfarm Business Sector, Real Compensation Per Hour
Productivity: Nonfarm Business Sector, Real Output Per Hour

No surprise, once again, and nothing that was not said before. The economy grows, wage earners gain less than others; the economy slumps, wage earners lose more than others.  As I said a while ago, regardless of the weather stones keep raining. And it rained particularly hard in the 2000s. No surprise that inequality became an issue at the outset of the crisis…

There is nevertheless a difference between recessions and expansions, as the spread with productivity growth seems larger in the former. So in some sense, the tide lifts all boats. It is just that some are lifted more than others.

Ah, of course Real Compensation Per Hour embeds all wages, including bonuses and stuff. Here is a comparison between median wage,compensation per hour, and productivity, going as far back as data allow.

2016_10_26_ineq_us_median_vs_average

I don’t think this needs any comment.