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White House Releases New Measure For Wage Growth, Breaking With Labor Department

Sep 7, 2018
Originally published on September 7, 2018 6:58 pm
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ARI SHAPIRO, HOST:

The latest jobs report came out today. And while the unemployment rate didn't change from the current 3.9 percent, the number many people were really focused on is wage growth. Today's report shows that wages grew in August, increasing 2.9 percent over August of last year. Many economists are concerned that wages are not growing as fast as they should be. And in response to that, the White House this week came out with a different calculation for wage growth, one that gives a rosier number than the Labor Department's official figure.

To talk more about this, we're joined by Elise Gould, an economist at the Economic Policy Institute who focuses on wages. Thanks for being here in the studio.

ELISE GOULD: Thanks for inviting me.

SHAPIRO: So without getting into too much jargon, explain the difference between the new way that the White House wants to calculate wages and the way that most economists, including the Labor Department, have been evaluating this.

GOULD: Sure. And to start out, I'd say that there are many different ways that you might look at wages. There's many different surveys that look at wages. The 2.9 percent, as you said, comes from the Labor Department report today. And that's looking at all private sector workers. Year over year, what has happened to wage growth? And that's nominal wage growth also, so not real. We think about real or inflation-adjusted wage growth, we're talking about how much more purchasing power people's wages have.

SHAPIRO: But what's the White House doing that's different here? What change is the White House making to get a better number?

GOULD: So they're trying to change the metric. And they're doing a few key things. One of the things is they're looking at compensation - so nonwage benefits, things like health insurance. They're looking at paid leave. They're trying to say, OK, wages are one thing, but there's other benefits that workers may be getting, and maybe we should take that into account.

SHAPIRO: So if somebody's getting the same paycheck but they're getting an extra week's vacation each year, that would be a higher number in this White House calculation than the ordinary Bureau of Labor Statistics calculation.

GOULD: Exactly, but to know it would also have been a higher number last year or the year before. So one of the things that the White House is doing is they're putting out a new number for this year without really putting that back in time to see, OK, now we need to sort of change the benchmark.

SHAPIRO: So that's a real apples-to-oranges comparison then.

GOULD: Right. It's sort of like moving the chains and the goalposts in the same direction at the same time. And it doesn't give you a better picture of how things are today.

SHAPIRO: What is the appropriate level of wage growth if there is such a thing?

GOULD: Well, when we think of in a growing economy, the Fed has a target inflation rate, and that's 2 percent. We also want to look at what's happening with workers becoming more productive over time - so how much more they're producing. And that has to do with technology and investments in education and lots of different things. And that is trending. The potential is around 1.5. We put those two together, then we should be looking at something like 3.5 percent or even higher.

SHAPIRO: So that makes the 2.9 percent number we saw today look a lot worse relatively speaking.

GOULD: Yes, although 2.9 percent honestly is better than we've been seeing.

SHAPIRO: Sure.

GOULD: So it is - there is some optimism with that number. Hopefully it moves up even faster. But the problem is that workers just don't have the kind of leverage that they've had in the past to be able to go to their employer and ask for wage increases. We've seen a decline, a long-term decline in collective bargaining, erosion of the minimum wage. We've also seen employers taking on practices that keep these workers from having better outside options - so things like having to sign noncompetes or nonpoaching clauses. And so workers can't more easily go out and try to get other outside options to bid up their wages.

SHAPIRO: That one top-line number, 2.9 percent wage growth compared to last year, lumps together a lot of different kinds of people and a lot of different kinds of workers. When you pick it apart, who are the winners and losers? Who's doing better? Who's doing worse?

GOULD: In general, we're still seeing people at the top doing better than people at the middle. That's growing inequality. Those at the top are having the biggest gains. What you're also seeing over the last few years is some gains at the very bottom. So those workers, those low-wage workers at the 10th, 20th percentile - we're actually seeing some meaningful rises in their wages. And I think some of that is attributed to the growing economy, and some of it is attributed to the fact that we've seen a number of state-level minimum wage increases that have raised pay for those workers.

The ones that are getting lost are those ones in the middle. We're talking about hourly wages around $20. Annual that's, you know, in the $40,000, $50,000, $60,000 range. You're talking about teachers, manufacturing workers. They're seeing very little wage growth.

SHAPIRO: Elise Gould is with the Economic Policy Institute. Thanks for joining us.

GOULD: Thank you. Transcript provided by NPR, Copyright NPR.