Hourly Wages Have Fallen in 18 of the Last 20 Months

Real hourly earnings were down 0.5%
and weekly earnings fell by 0.4% between December 2004 and December
2005 (note that these values, reported by the BLS, use a different
measure of price growth, the CPI-W, which rose slightly faster
than the CPI-U last year).

On a year-over-year basis,
real hourly earnings have fallen 18 out of the last 20 months
(17 of 20 months for weekly earnings). The decline in real wages
results from both faster inflation over the course of 2005 (up
3.4% for the year, and the fastest yearly price growth since
2000) and slower nominal wage growth over the past few years
especially when compared to the pace that prevailed before the
jobless recovery.

Using the CPI-U, in real terms
the average wage of non-managerial workers (roughly 80% of the
workforce) was $16.34 in December 2005, just about the same level
in real dollars as the $16.36 level that prevailed in November
2001, the month the current recovery began. The comparable weekly
values are $551 (November 2001) and $553 (December 2005).

Thus, after over four years
of a recovery that has been touted by some as healthy and robust,
most workers’ buying power remains unchanged. This lack of progress
is especially unsettling given the 13.5% growth in labor productivity
over this period (2001q1-2005q3).

Taking the average over the
full year of 2005, hourly earnings fell 0.6% compared to 2004
(coincidentally, 2004 also saw an 0.6% annual average wage loss
compared to 2003).

After falling in the early
1990s downturn, and then stagnating in the initially weak recovery
that followed, real wages grew solidly through the rest of the
1990s. The momentum of that full employment job market kept
real wages rising through 2003, before reversing course over
the past two years.

Jared Bernstein and Sylvia A. Allegretto are
economists at the Economic Policy