Real Earnings Should Stop Falling If Energy Prices Stop Rising

Alan ReynoldsIn an interesting newPeterson Institute blog, Jason Furman and Willie Powell write, “Real wages and compensation increased dramatically in the first six months of the pandemic, as prices fell while wages and compensation continued to grow. Since then, however, price growth has been more rapid than wage and compensation growth, and so real wages and compensation have been falling. ”The facts are clear, yet they scream out for clarification. First, evennominalaverage hourly earnings “increased dramatically in the first six months of the pandemic (March‐​August 2020)” while the economy collapsed under COVID-19 fears and lockdowns. But the rise in “average” wages was a statistical anomaly.Millions of low ‐​wage workers were prohibited from working and fell out of the average leaving only an average of mostly upper‐​wage people working at home on Zoom. Unlike the illusory rise in average nominal wages, the 2020 gain inrealwages was indeed helped by falling prices of goods and services liquidated at distress sale prices when stores and services were locked down. That included bargain prices of goods like gasoline and used cars which later rebounded at a  furious pace as economies were reopened after February 2021.The graph shows year ‐​to‐​year changes in medianwages for full ‐​time workers, which might be less distorted than the mean average except that excluding part‐​time workers means millions of low‐​wage workers who w...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs