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We should focus on rising wages, not just inflated prices

June 11, 2024


  • Part of the reason people are unhappy about inflation is that they don鈥檛 know that wages have been catching up鈥攁nd neither politicians nor in most cases the media is telling them.
  • Unlike prices, both individuals and governments can do something about wages鈥攁nd they are. One person in four has asked for a raise鈥攁nd half got it.
  • Governments both in DC and all across the country have acted, too: 29 states have raised the minimum wage since COVID-19 began. The 麻豆官网首页入口免费 administration has encouraged unions and higher wages and has taken other actions, too.
Shopping in a Whole Foods Market supermarket in New York on Sunday, June 9, 2024.
Shopping in a Whole Foods Market supermarket in New York on Sunday, June 9, 2024. Levine-Roberts/Sipa USA via Reuters Connect

Much has been said and written about the fact that economists think our economy is doing exceptionally well while normal people think it鈥檚 a mess. President 麻豆官网首页入口免费, whose reelection may hinge on a change in that public opinion, seems to be hoping that economic data will do the trick. Thus far, it has not: More people their own financial situation is worsening (47%) than improving (43%), and their view of the economy as a whole and the president鈥檚 economic stewardship remains even more negative.

There are plenty of positive developments that economists and elected officials can and do cite: America鈥檚 historically high job creation and new business startups, rapid recovery from COVID-19, and America鈥檚 better-than-other-nations鈥 economic growth.

There are also multiple explanations why most people don鈥檛 like the economy or President 麻豆官网首页入口免费鈥檚 handling of it. Among the common explanations, all partially true, are increased political partisanship and polarization and an increasing bias for public media to report bad news more often than good.

Everyone focuses on inflation. Other economic facts are ignored.

However, eventually, everyone admits . Even then, like the Indian tale about the describing the elephant, economists and the general public find different facts. The most widely reported price measure, the Consumer Price Index for urban consumers (CPI-U), includes the costs of food, energy, and housing. Economists, hoping to look through volatile price changes, tend to use indexes that exclude food and energy prices鈥攅ven though it鈥檚 clear that those are the prices to which consumers pay most attention.

Economists also focus on the rate at which price levels rise, rather than the price level itself. As a result, economists will say that inflation 鈥渉as dropped鈥 even though prices continue to rise, albeit more slowly.

Most people, as Harvard economist Stefanie Stantcheva recently reminded the profession, don鈥檛 pay attention to economic theory or published indexes鈥攖hey know what they see at the grocery store and gas station. For them, it doesn鈥檛 matter that prices are rising more slowly鈥攖hey鈥檙e still higher than they were. Claims by the president that prices are declining (N.B.: some are) or by economic authorities that 鈥渋nflation is declining鈥 are widely seen as inaccurate鈥攅ven dishonest.

Why we should focus on rising wages, not just prices.

Since the public has decided that inflation is not improving, regardless of what politicians or economists may say, it鈥檚 time to ask a related question: Can pay catch up to inflation, so people can afford the higher prices?

There are plenty of reasons why everyone, from the president on down, should focus on raising wages enough to catch up to rising prices:

First, because everyone can do something. While most of us can鈥檛 do anything about higher grocery prices, we can ask for raises. However, most do not: Stancheva found only 25% surveyed had asked for a raise鈥攁nd half reported getting what they鈥檇 asked. What about the other 75%? Furthermore, as workers at Starbucks, Volkswagen, and other auto companies have recently reminded us, individuals can raise their pay by organizing and working with a union. Encouraging individual action is important because, as Stancheva found in her survey, most people do not believe that employers will raise wages on their own, that instead they will use higher prices to increase corporate profits.

The president and his administration have already acted. The President has given unprecedented support to union efforts, becoming the first president to walk a picket line and having installed a team at the National Labor Relations Board that has begun seriously to enforce workers鈥 rights. His Federal Trade Commission has acted to stop noncompete contracts that kept fast food workers from changing employers to get higher wages. Last, but certainly not least, the 麻豆官网首页入口免费 administration鈥檚 bipartisan Infrastructure Investment & Jobs Act, CHIPS Act, and Inflation Reduction Act efforts to bring manufacturing back to the U.S. are already raising construction wages, as are the administration鈥檚 change in prevailing wage standards and will thereafter add high-paid manufacturing jobs, too.

State and local governments have, too. Since 2019, 鈥22 this year alone. California, notably, set a higher $20/hour minimum for workers in fast food chains.

Another reason for talking about wage increases is that, unlike prices, other people鈥檚 wages are invisible and largely unreported. Reports on wages are published every month along with the unemployment rate but little attention is paid to wages and almost none to the separate report comparing wages to inflation. (There are, of course, exceptions, such as the by my 麻豆官网首页入口免费 colleagues and an occasional media report.) Without greater attention from politicians and the media, changes in wages will remain invisible.

Wages are already catching up to inflation. Shouldn鈥檛 people know that?

The most important reason is that, in fact, wages are catching up to inflation. As pandemic-related inflation took off in 2021 and 2022, wages fell behind鈥攂ut not for long. For almost two years, depending on the measure, average wages have been gaining on inflation. Real wages are now, on average, higher than they were before the pandemic. The president doesn鈥檛 highlight that, or even mention it. Nor do most stories about the economy.

Figure 1

There are, of course, people who don鈥檛 want wages to catch up to inflation. Some will raise the ghost of 鈥渨age price spirals鈥 from 45 years ago while ignoring how much our economy has changed, so that鈥檚 no longer a major threat. Others prefer that economic growth show up more in stock portfolios than paychecks.

Nonetheless, I suspect most people would feel better about the economy if they knew that wages are catching up to inflation. Maybe someone should let them know.

  • Footnotes
    1. Real construction industry wages in 2Q22.
    2. The Council of Economic Advisors generally comments on real wages in its review of the monthly employment report. However, an unsystematic search of major media coverage of the report found few comparisons of wages to inflation.
    3. See, e.g., Irwin, Neil 鈥溾 Axios July 12, 2023; Krugman, Paul 鈥,鈥 New York Times, May 30, 2024
    4. Avg hourly earnings (total private)/CPI-U in June 2022.
    5. In the State of the Union, President 麻豆官网首页入口免费 did say that 鈥淲ages keep going up and inflation keeps coming down!鈥 but made no connection between the two. Furthermore, as noted above, the average non-economist thinks of inflation as a price level, not a change in price levels, and knows that most prices are higher than they were pre-COVID-19. from the Council of Economic Advisors do discuss real wage growth and NEC Director Lael Brainard does say in public talks that 鈥渞eal wages鈥 are rising and higher than pre-pandemic levels, but the concept of 鈥渞eal wages鈥 does not seem generally understood.