The big news Friday is that wages are growing above 3 percent for the first time since 2009. It’s a significant milestone after years of sluggish wage growth, and most economists say workers will probably see strong gains for the foreseeable future.
The good news comes with two caveats.
The first is the 3.1 percent annual wage growth figure the Labor Department reported Friday is slightly inflated because of some hurricane effects. Remember the really bad hurricanes in the fall of 2017? Those ended up depressing wages in October 2017, so when the Labor Department calculated the year over year change for wages this October, it looked like a bigger jump than normal because last year’s number was low. That said, economists still think we’re likely to see more months of three-plus wage growth, so this isn’t a total blip.
The second caveat is that while wage growth is getting better, it’s still well below the norm and coming at a time when U.S. companies are earning record profits.
“I don’t want to play down the optimistic story here. Things are getting better. Wages are firming on a nominal basis for workers,” said Ernie Tedeschi, head of fiscal analysis at Evercore ISI and a former economist in the Obama administration. “But if you look back in 2000, wage growth was much higher.”
In the 1990s dot-com boom wage growth was regularly at 3.5 percent to 4 percent a month. Those numbers seem dreamy today. (And after adjusting for rising costs, workers are getting only about a 0.8 percent rise based on Friday’s numbers).
Corporate profits, meanwhile, are at an all-time high, according to Howard Silverblatt of S&P Dow Jones Indices and government data. Corporate tax cuts have enabled companies to boost profitability, many analysts and executives say. But companies are spending a lot of their extra cash on stock buybacks and dividends, leaving only a little extra for workers.
This is part of a long-term trend. Workers no longer get the same “piece of the pie” as they did from the 1950s up to the 1990s. Labor’s share of business income has declined steadily since 2001 and fell sharply during the Great Recession. While corporate profits have rebounded since then and hit new highs, labor’s share isn’t even back to where it was pre-crisis, according to Labor Department data.
The bottom line is workers are seeing a nine-year high in wages at a time when corporate profits are off the charts. The latest data on this phenomenon is from the quarter that just ended in September, and it shows more of the same: Workers are still getting a small share of income.
“Never have corporate profits outgrown employee compensation so clearly and for so long,” noted a recent Federal Reserve Bank of St. Louis blog post.