We are experiencing a period of sustained economic growth as measured by GDP. We have low unemployment but modest jobs growth and data on wages that is a bit confusing. This is one of those politicized economic issues which makes it difficult to separate the economics from the social-political issues but I shall try.
Lets look at some graphs. The good news. This is a picture of Average Hourly Wage:
Yet, the Average Hourly Wage adjusted for inflation has been virtually dead flat for four years, that's appears to be bad news for workers. However the point of view of employers may be different. Employers have been paying rising cost of employees increasing medical benefits. While real wages have been essentially stagnant from 2000-2004 the dollar value of health care benefits has gone up 7.3%.
In fact, this is nothing new. Real wages from 1960 to 2004 for good producing employees have gone (in terms of 1960 dollars) from $2.15/hour to $2.53/hour. If you find that confusing, think of it in terms of 2004 dollars. In terms of 2004 dollars wages were $13.72 in 1960 and $16.15 in 2004. For folks in manufacturing wages have, in fact, been relatively flat for a long time.
I was not able to find a suitable graph of real (inflation adjusted) wages. If you have or know of one please let me know where it is and I will put in in the cataloged version of this. Ther graph would be relatively flat with a modest upward trend and a noticable flat period as of late.
For all public and private sector employees, not merely folks in manufacturing, the picture is less bleak. In inflation-adjusted dollars, income from work has increased from $2.26/hour to $3.43/hour (in 1960 dollars), a 52 percent increase.
To reiterate: Average Hourly Wages have been steadily going up. Real Wages (the gross pay that folks get) has been flat lately and, in fact, for a long time. The picture is worse for folks in manufacturing than all workers in general.
The cost of this work to the employer has gotten to be a good bit greater because much of the increase in cost has gone to health care costs and, to some extent, pension benefits.
This is the Employment Cost Index for the past 25 years. This is the total cost of compensation to the employer:
Perhaps what we have is a situation where no one is happy. Employees are seeing flat pay. Employers are spending more but the difference is going to neither the employer or the employee. A worker does not go home to his/her spouse and say, "Good news, honey, the cost to the boss of the medical plan which we get has gone up 100 bucks a month. We really stuck it to the man!"
Nominal and real wages have been held down by several conspicuous forces. An oversimplification would be: globalization and Wal-Mart. Globalization has threatened American workers with the knowledge that if their wages go outside certain limits their work will be done elsewhere. Wal-Mart has created and end-to-end chain where low prices are a benefit to the retail customer and to Wal-Mart and, essentially, everyone in the middle has to settle for less than they would get without Wal-Mart. The irony is that the presence of Wal-Mart acts to keep prices lower everywhere. Retailers of a broad spectrum of products must be concerned about Wal-Mart. Wal-Mart keeps prices low at all grocery chains, traditional department stores, and electronics discounters. I suppose that only Neiman-Marcus is unaffected.
None of this should shock. The primary force the Fed seeks to fight is inflation. The most permanent form of inflation is wage inflation. So the question is which do you want: flat real wages or inflation?
Note that workers, Keynes pointed out, bargain for money wages, not real wages. At present, workers may well be more concerned about their employer covering all of their health care cost then they are about nominal or real wages. Analysis of where wages have been going lately requires scratching below the surface. The lack of inclusion of increased health care cost - a clear economic benefit to the employee - in nominal or real wages obfuscates not only compensation but also the real concerns of workers and unions.