Creative Stories on Wage Growth in the Washington Post

There was a larger than expected jump of 8 cents in the average hourly wage reported for June. This left some folks scrambling for an explanation. The Washington Post found a creative one, courtesy of "some analysts."

According to these analysts, the more rapid wage growth in June is partly explained by a change in the mix of jobs, with the economy losing low wage jobs in the retail sector and adding jobs in the relatively high-paying manufacturing sector.

Okay, sports fans, let's check the numbers. Employment of production workers (the relevant category) in the retail sector reportedly fell by 20,000 in June. Employment of production workers in manufacturing increased by 19,000. This gives a total change in composition of 39,000. This change in composition is equal to 0.042 percent of the total employment of production workers (92,700,000).

The difference in pay between manufacturing workers and retail workers is $4.25 an hour. This means that 0.18 cents of the reported increase in wages in June can be explained by this shift in the composition of employment. Some analysts should be happy that their names did not appear.

The more obvious explanation for the rapid wage growth reported for June was the slow wage growth reported in May. In the economy, the actual pace of wage growth generally does not change very much from month to month. When our surveys show unusually strong or weak growth in a given month, it is more likely due to sampling error than anything real in the economy. The May data showed the average hourly wage growing by just 1 cent. This was almost certainly slower than the true rate of wage growth in May. In effect, the June data was picking up both wage growth in June plus the gap between the true pace of wage in May and the reported rate. Some of us who watch the numbers were not surprised by the big June increase.

--Dean Baker

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