Real Wages Are Steady, But How Long Can Trends Last?
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This is Your Money Matters from The Wall Street Journal.
Hello, welcome. I'm Tanya Bustos reporting from the newsroom in New York. So average wage growth has been unexciting yet firm and below historic norms for several years. Workers have been able to stretch their paychecks farther because inflation is so low. Wages seem to keep powering ahead. But how long can this trend really last? Let's get the latest. Joining us now from D.C.
What is driving the recent steady rise in U.S. hourly wages?
is The Wall Street Journal's Eric Marath.
Thanks for having me.
Hourly wages in the U.S. are racking up solid gains, but it's hard to fully grasp and appreciate that if we look at our paychecks, right? So can you break down the current climate for us? Lately, it hasn't seemed to be described as anything other than steady.
Yeah, so that's definitely where we're at. We've seen 2.5% wage growth. pretty much be the norm for the past two years, which is not bad, but it's certainly historically below average for this deep into an economic expansion. But we saw a little bit of a different story when you adjust that small gain for inflation. When you adjust for inflation, which has been historically low for the past five years, wages, inflation adjusted wages, what economists call real wages, have actually grown faster during this economic cycle since 2007 than in the 2000s, the 1990s, the 1980s, times where people say, hey, those are boom times. Those are really good. It's kind of interesting because in the 1980s, inflation adjusted wages fell, even though overall Americans, when you don't adjust them, your paychecks were going up quite a bit.
Where do you see things going as it stands? There's a lot going on. There's rising gas prices. There's a lot of volatility in Washington. How do you see all that shaking down and entering this equation?
Sure. So looking forward, though, that's an excellent question. We are starting to see some creep up of gas prices and we're starting to see some other inflation and pressures potentially building. But it's again, it's been historically very, very mild compared to where we've been. So if we see those pressures build more, that could be a drag on real wages unless, and we're seeing this in parts of the country, you actually see paychecks increase. And that way, you know, it could exceed the rate of inflation, even if inflation ticks above 2%, where it hasn't been for five years. It's already happening. I talked to a catering company, for example, in the Denver, Colorado area, and she said she's raised her wages from 12 all the way up to $15 an hour for just a server at, you know, a wedding.
And she's still struggling to find workers and offering bonuses and things like that. So it's happening in certain areas of the country. Denver has one of the lowest unemployment rates in the country. It's not happening everywhere. So I think that there's going to be pockets of industries and pockets of the country where you're going to see solid wage growth, and you already are. But there's other places everywhere. where they're just going to lag behind. We have an uneven economy across this country.
We're speaking to The Wall Street Journal's Eric Marath about hourly wages in the U.S.
How do real (inflation‑adjusted) wages compare to past economic cycles?
You're listening to Your Money Matters from The Wall Street Journal. Thanks for joining us. So, Eric, I want to jump back. There's a lot of components here, household income, productivity, but workforce is something you mentioned, and that's an interesting one. How does the shift continue to change the game in this equation?
Well, I think the workforce is only going to tighten further. We have historically low unemployment, below 5% unemployment this year. I think at this point, we're attracting some people into the workforce. People that maybe had been out since the recession are saying, oh, I hear there's a lot of jobs out there. I see wages might be going up here in inflation-adjusted terms, at least, that it's worth me exploring getting back in the workforce. But that that's not an unending pool of labor. And what is happening is, you know, Americans are getting older and there's probably going to be, you know, a smaller share of the population that we will be actively working or looking for work over time.
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