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Is there any value to citing wages as opposed to real wages? It even says "Not adjusted for inflation" in the chart showing the increase in average hourly earni

Is there any value to citing wages as opposed to real wages? It even says "Not adjusted for inflation" in the chart showing the increase in average hourly earnings. Real wages have increased +1.5% March 2018 - March 2019, which the article would do well to point out. Citing that growth has topped 3% for nine months is almost in some ways misleading if it turns out that growth doesn't confer a similar increase in purchasing power. The BLS tracks real wages which is where I got my 1.5% figure. To further put things in perspective, from March 2018 through March 2019 average paychecks increased by about $30 a week. At the same time, real average weekly earnings only increased by about $5. I don't get why they would avoid (edit: less so "avoid" more like "miss/omit") this subject completely.

joe_the_user 7y ago
Yeah, the chart is pretty strange. It is the yearly increase rate for wages not adjusted for inflation. Even if this is somehow a reasonable proxy for increases in real median wages, it seems unnecessary given that you could just have a chart of real median wages instead. I suspect a factor is that actual changes in income have been quite small and it's nicer to have an image that shows something dramatic instead of the marginal blip that we've actually seen.
- worik 7y ago
  Possibly. But "inflation" is a slippery concept. It is often published as a single number but it is not. Prices do not rise in the same way for all people. Relative costs and prices across the things money is used for. A poor family is buying different things from a middle class one. Nominal wages matter a lot. And these days prices are not moving much and it is recognised that it is very important that they go up, a lot, for those at the bottom.
  - roenxi 7y ago
    Nominal wages are almost completely irrelevant, that is why real wages exist as a concept. Inflation is slippery but arguing that nominal wages matter is pushing it too far. The official inflation rate is a polite fabrication in the sense that strictly speaking there aren't a lot of people who experience the official inflation rate in a year. But it is measuring an all too real effect that needs to be factored in to everything to have a serious debate about what is happening in the real world. I'm not even sure how to rebut the idea because I don't know any arguments in favour of using nominal wages over real that aren't straw man arguments. > And these days prices are not moving much and it is recognised that it is very important that they go up, a lot, for those at the bottom. I'm not totally sure I'm reading this right, but I assume you mean nominal prices for people who are poor. If so, this is a horrible idea. Nobody but nobody should want to raise the real or even nominal cost of living for poor people. It is obviously a brutal thing to do, and as a social group they don't command enough money to get a worthwhile effect from squeezing them.
    - worik 7y ago
      > And these days prices are not moving much and it is recognised that it is very important that they go up, a lot, for those at the bottom. Oops. I meant nominal wages must go up, and nominal prices are not moving much.
    - AnthonyMouse 7y ago
      > But it is measuring an all too real effect that needs to be factored in to everything to have a serious debate about what is happening in the real world. Well, sort of. The major thing this doesn't apply to is borrowed money. If both prices and wages increased by 10% then adjusting for inflation you would say there has been no gain, but tell that to the person with a mortgage or student loans who is now paying back the same nominal principal amount while earning more nominal dollars.
      - sjwright 7y ago
        Correct, if the interest rate is fixed. Otherwise the same market forces captured by the inflation rate is also pressuring the interest rate paid on loans. Put simply, if tomorrow’s money is worth less than today’s money, interest rates must increase correspondingly.
        AnthonyMouse 7y ago
        That's assuming interest rates are set by the market rather than the Fed. In the latter case it's often the opposite which is true -- the Fed sets a low interest rate which in principle causes inflation and wage growth as people borrow money and spend it. Moreover, the bank doesn't care that much that you're paying back the loan in less valuable money because they never actually had the money they loaned you to begin with. Having money in a bank account is you loaning the bank money, taking out a loan is the bank loaning you money, so as long as the money they loaned you is still in somebody's bank account they just cancel out. It's the person holding the cash in their account, not the bank, who is eating the currency devaluation.
      - roenxi 7y ago
  - joe_the_user 7y ago
    Nominal wages matter a lot. And these days prices are not moving much and it is recognised that it is very important that they go up, a lot, for those at the bottom. This is a contradictory argument. Real wages are the standard. If prices aren't changing much, then nominal wages are close to real wages and so they can't matter a lot as separate factor. The way nominal wages could matter is just if they are distinction from real wages and are able to give a (false) psychological feeling of wealth (things that go under the "wealth effect").
    - worik 7y ago
      "Real wages are the standard." Standard for what? What are real wages? There is no "real wage" that can be compared across sectors very meaningfully. What really matters is access to the resources needed to live a fulfilled and healthy life. "Real wages" as measured by discounting nominal wages with a number called "inflation" is a indication of that access. It is imperfect because the measure of inflation is far from perfect. Duh! Social policy matters much more. Does society care about housing, education, health care, nutrition...? In many places accommodation cost inflation has wiped out many families. Proper housing policy would knock that on the head but in anglophone countries (and now it seems in West Germany too) it has been abandoned. But this study is not about that. Back to the point: Incomes matter. Wages are one indication of income. Purchasing power matters. Real wages are a indication of that. But a lot else matters. And studying nominal wages on their own is not a pointless task. Nominal wages can be compared across all sectors that use the same currency. Inflation, as a single number, can not. So looking at the changes in prices people face would be interesting too. But that is not what this study is about.
      - skookumchuck 7y ago
        What you're reaching for is expressing wages in terms of "Purchasing Power Parity", or PPP. https://en.wikipedia.org/wiki/Purchasing_power_parity https://en.wikipedia.org/wiki/Purchasing_power_parity
  - fjsolwmv 7y ago
    Wages also don't rise in the same way for all people.
ACow_Adonis 7y ago
probably because the article is written from the perspective of labour/macro- economics rather than welfare economics. It's true it touches on where the wage gains are going (although to me that looked rather inconclusive frankly), but I think it's primarily concerned with notions of wage stickiness in labour markets, not measures of productivity or real-wage gains or welfare. And to be fair, if the US is anything like here, official bodies have been having trouble modeling/predicting nominal wage growth and inflation over recent history.
harimau777 7y ago
Do you know of any resources that lay out how the post inflation numbers compare when you take into account years where wage growth was less than inflation? For example, how do wages after this growth compare to the 70s and 80s?

joe_the_user 7y ago

Yeah, the chart is pretty strange. It is the yearly increase rate for wages not adjusted for inflation. Even if this is somehow a reasonable proxy for increases in real median wages, it seems unnecessary given that you could just have a chart of real median wages instead. I suspect a factor is that actual changes in income have been quite small and it's nicer to have an image that shows something dramatic instead of the marginal blip that we've actually seen.

worik 7y ago
Possibly. But "inflation" is a slippery concept. It is often published as a single number but it is not. Prices do not rise in the same way for all people. Relative costs and prices across the things money is used for. A poor family is buying different things from a middle class one. Nominal wages matter a lot. And these days prices are not moving much and it is recognised that it is very important that they go up, a lot, for those at the bottom.
- roenxi 7y ago
  Nominal wages are almost completely irrelevant, that is why real wages exist as a concept. Inflation is slippery but arguing that nominal wages matter is pushing it too far. The official inflation rate is a polite fabrication in the sense that strictly speaking there aren't a lot of people who experience the official inflation rate in a year. But it is measuring an all too real effect that needs to be factored in to everything to have a serious debate about what is happening in the real world. I'm not even sure how to rebut the idea because I don't know any arguments in favour of using nominal wages over real that aren't straw man arguments. > And these days prices are not moving much and it is recognised that it is very important that they go up, a lot, for those at the bottom. I'm not totally sure I'm reading this right, but I assume you mean nominal prices for people who are poor. If so, this is a horrible idea. Nobody but nobody should want to raise the real or even nominal cost of living for poor people. It is obviously a brutal thing to do, and as a social group they don't command enough money to get a worthwhile effect from squeezing them.
  - worik 7y ago
    > And these days prices are not moving much and it is recognised that it is very important that they go up, a lot, for those at the bottom. Oops. I meant nominal wages must go up, and nominal prices are not moving much.
  - AnthonyMouse 7y ago
    > But it is measuring an all too real effect that needs to be factored in to everything to have a serious debate about what is happening in the real world. Well, sort of. The major thing this doesn't apply to is borrowed money. If both prices and wages increased by 10% then adjusting for inflation you would say there has been no gain, but tell that to the person with a mortgage or student loans who is now paying back the same nominal principal amount while earning more nominal dollars.
    - sjwright 7y ago
      Correct, if the interest rate is fixed. Otherwise the same market forces captured by the inflation rate is also pressuring the interest rate paid on loans. Put simply, if tomorrow’s money is worth less than today’s money, interest rates must increase correspondingly.
      - AnthonyMouse 7y ago
        That's assuming interest rates are set by the market rather than the Fed. In the latter case it's often the opposite which is true -- the Fed sets a low interest rate which in principle causes inflation and wage growth as people borrow money and spend it. Moreover, the bank doesn't care that much that you're paying back the loan in less valuable money because they never actually had the money they loaned you to begin with. Having money in a bank account is you loaning the bank money, taking out a loan is the bank loaning you money, so as long as the money they loaned you is still in somebody's bank account they just cancel out. It's the person holding the cash in their account, not the bank, who is eating the currency devaluation.
    - roenxi 7y ago
- joe_the_user 7y ago
  Nominal wages matter a lot. And these days prices are not moving much and it is recognised that it is very important that they go up, a lot, for those at the bottom. This is a contradictory argument. Real wages are the standard. If prices aren't changing much, then nominal wages are close to real wages and so they can't matter a lot as separate factor. The way nominal wages could matter is just if they are distinction from real wages and are able to give a (false) psychological feeling of wealth (things that go under the "wealth effect").
  - worik 7y ago
    "Real wages are the standard." Standard for what? What are real wages? There is no "real wage" that can be compared across sectors very meaningfully. What really matters is access to the resources needed to live a fulfilled and healthy life. "Real wages" as measured by discounting nominal wages with a number called "inflation" is a indication of that access. It is imperfect because the measure of inflation is far from perfect. Duh! Social policy matters much more. Does society care about housing, education, health care, nutrition...? In many places accommodation cost inflation has wiped out many families. Proper housing policy would knock that on the head but in anglophone countries (and now it seems in West Germany too) it has been abandoned. But this study is not about that. Back to the point: Incomes matter. Wages are one indication of income. Purchasing power matters. Real wages are a indication of that. But a lot else matters. And studying nominal wages on their own is not a pointless task. Nominal wages can be compared across all sectors that use the same currency. Inflation, as a single number, can not. So looking at the changes in prices people face would be interesting too. But that is not what this study is about.
    - skookumchuck 7y ago
      What you're reaching for is expressing wages in terms of "Purchasing Power Parity", or PPP. https://en.wikipedia.org/wiki/Purchasing_power_parity https://en.wikipedia.org/wiki/Purchasing_power_parity
- fjsolwmv 7y ago
  Wages also don't rise in the same way for all people.

ACow_Adonis 7y ago

probably because the article is written from the perspective of labour/macro- economics rather than welfare economics. It's true it touches on where the wage gains are going (although to me that looked rather inconclusive frankly), but I think it's primarily concerned with notions of wage stickiness in labour markets, not measures of productivity or real-wage gains or welfare. And to be fair, if the US is anything like here, official bodies have been having trouble modeling/predicting nominal wage growth and inflation over recent history.

harimau777 7y ago

Do you know of any resources that lay out how the post inflation numbers compare when you take into account years where wage growth was less than inflation? For example, how do wages after this growth compare to the 70s and 80s?