Fed Should Not Push the Brakes Wages Have Decelerated in 2014

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http://www.epi.org/publication/fed-should-not-push-the-brakes/

The most salient economic debate raging today revolves around if and when the Federal Reserve should raise today’s very low short-term interest rates in a bid to slow the recovery to forestall inflationary pressure in the economy. This would clearly be a bad idea and would amount to slowing the recovery before it had reached the paychecks of most American workers. The most recent data show that wages for virtually all workers have continued to stagnate, if not fall, in 2014.

The figure below shows the cumulative growth in real hourly wages for the 10th, 30th, 50th, 70th, and 95th percentiles between the first half of 2007 and the first half of 2014. Aside from an increase in 2009 that was driven by outright price deflation (falling prices, caused by both the slack generated by the Great Recession and an extraordinarily large decline in energy prices), wages for most groups fell through 2012. While there was an increase between 2012 and 2013 (again, driven mostly by decelerating price inflation), it was short-lived, and wages for all but the 10th percentile have fallen again over year ending in June 2014.



What is particularly striking is that wages at the bottom of the wage distribution were the only ones that didn’t fall between the first half of 2013 and first half of 2014. Squint hard at the lines and you can see that only the 10th percentile line fails to slope downward in the last year on the graph. Every other decile and the 95th percentile experienced real wage declines from the first half of 2013 to the first half of 2014. Granted, the 10th percentile wage only increased by 0.3 percent; however, the fact that it did not decline along with the wages of all the other groups is worth noting. And this resistance to decline was driven entirely due to minimum wage increases in states where 40 percent of U.S. workers reside.