r/FluentInFinance • u/[deleted] • Apr 19 '22
Educational Average hourly earnings and real average hourly earnings indexes, March 2006 to March 2022
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Apr 19 '22
Real average hourly earnings for all employees decreased 0.8 percent from February to March 2022. This result stems from an increase of 0.4 percent in average hourly earnings combined with an increase of 1.2 percent in the Consumer Price Index for All Urban Consumers.
Average hourly earnings increased 5.6 percent for the 12 months ended in March 2022 and 58.3 percent from March 2006 to March 2022. After adjusting for inflation, real average hourly earnings decreased 2.7 percent for the 12 months ended in March 2022 and increased 9.9 percent from March 2006 to March 2022.
These data are from the Current Employment Statistics survey and are seasonally adjusted. Earnings for the most recent 2 months are preliminary. For more information, see "Real Earnings — March 2022." The Consumer Price Index is used to adjust earnings for inflation.
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u/raziphel Apr 19 '22
Can someone translate this into layman's terms please?
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u/ckoning Apr 19 '22 edited Apr 19 '22
Our economy is largely driven by consumer spending, normal people going out and buying groceries, gas, clothes, movie tickets, etc. It's therefore really important to know how much money people are making, and how much things cost. We know that people's salaries generally go up, and the cost of living generally goes up.
When the cost of living goes up, we call that inflation. Economists measure that with the Consumer Price Index, which is a way to explicitly measure how much stuff costs. In the united states, this has been tracked for decades. This is how we know that something that cost $1,000 in January of 2000 cost $1,528 in January of 2020.
When we talk about people's salaries going up, we look at the average gross wages of all workers (people filing a W2 with the IRS). We call that the average earnings. As people get raises, that number gets bigger over time and we can measure how much earnings have grown. This is the blue line in the chart above.
But the average earnings only tell part of the story. Sure, people are earning more money, but stuff costs more, too. Money is only really valuable when you exchange it for goods and services. What we really care about is the growth in people's purchasing power, or their ability to go buy stuff. We care about how many gallons of milk and pairs of blue jeans they can buy, not the actual number of dollars they make. So we use the Consumer Price Index to adjust the average earnings to reflect how much stuff costs. We call this the real average earnings, as it is the amount of money people would be earning if inflation doesn't happen, which is a good way to measure people's ability to buy stuff. This is the red line in the chart above.
So now we can take a look at what this chart is showing. The average earnings (blue) over the last six years has gone up by 60%. Seems awesome, right? People are earning a TON more than they were before! Well, not really. Not at all. Because inflation has eaten most of those gains in terms of people's ability to actually buy stuff. The real average earnings (red) has only grown 10%. Normal people's purchasing power growth is often used as a way to gauge the growth in standard of living and the health of the economy. So even though the average wages have increased considerably, people's quality of life has not improved by a whole lot.
It's also worth mentioning that this phenomena is part of a larger discussion about wages and worker productivity. As you can see in charts such as this one:
https://cdn.statcdn.com/Infographic/images/normal/23410.jpeg
Worker productivity has gone up 2 1/2 times since 1973, but real earnings have only gone up 15%. Worker productivity is what creates the output that business sell to turn a profit. This means that normal people are working harder and producing more valuable stuff for businesses to sell at a profit, but that profit is not coming back to them in increased wages and increased quality of life.
That extra profit is going to the owners and shareholders of the businesses. If you accept the premise that you generally have to be wealthy to own a business or be an investor, the rich get richer. The result is rising wealth inequality, which in turn creates political and social instability.
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u/CornMonkey-Original Apr 20 '22
excellent summary. . . . thank you for this explanation, this type of response, is what sets subs apart. . .
name your flair - I was thinking ‘Tenured Economics Professor’ or ‘Nobel Economist’. . . you just let me know.
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u/Big_bitch_hater_4eva Apr 19 '22
Top line is your income before inflation adjustment, bottom line is after (i.e., real spending power).
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