01 July 2016

Income Growth its Highest Since 1998 (Or, Why Wages Are Finally Growing)

In the first half of this decade, unemployment came back down to normal. In the last half of this decade, income growth will return to normal. I've made this argument before at R World, and recent data from the IRS supports it.

At EquitableGrowth.org, they report that in 2015 income for the bottom 99th percent grew by 3.9% after inflation. From 2009 to 2013, incomes were nearly stagnant - going up only 1.1%, after falling from 2007 to 2009.

There is no magic in this. Many pundits who were commenting on the job growth numbers in the first half of this decade would "yeah but" the growth with "income growth is still stagnant."

There was nothing unusual about this.  First of all, data on income growth lags job creation numbers. The IRS is only now beginning to report on 2015. Secondly, when unemployment is higher than average, there is little need to raise wages. You don't have to offer an unemployed guy much money to get him to say yes to a job offer. By contrast, you do have to sweeten an offer made to a guy who you are trying to lure away from another job.

In 2012, the unemployment rate was averaged 8.1%. Income growth was negligible.

By 2015, the unemployment rate averaged 5.3%, Income growth was the highest it has been since 1998.

With the unemployment rate under 5% this year, wage growth could be even higher.

Perhaps we can finally say that the recovery is over and now we are simply experiencing growth. It's taken a long time to get here.

No comments: