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Category: Economics and Wages
Date: 15 January 2020 We take a look at the latest real earnings summary released by the Bureau of Labor Statistics for December 2019, which showed a decline in the real average hourly wages from November 2019 to December 2019, driven largely by higher rates of inflation reported for December 2019
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Real average hourly wages December 2019
So what is real earnings? Real earnings referrers to earnings earned after the effects of inflation has been removed from the nominal earnings. The purpose of removing the effects of inflation is to identify the underlying trend in earnings growth after stripping out the effects of inflation which could inflate nominal earnings numbers while the earnings after removing the impact of inflation could be telling a totally different store. So real earnings is the best indicator of the actual movement in earnings and buying power of such earnings.
For example imagine your weekly earnings increases from $500 to $550. (That is a 10% increase in your weekly earnings. Nice!). But now imagine that the cost of goods you bought increased from $400 to $450 (that is 12.5% increase in the goods you buy). So in real terms you are actually worse off by 2.5% as your nominal earnings increased by 10% but the inflation rate of the goods you buy increased by 12.5%. So real earnings is there to show your actual weekly and monthly earnings after removing the effects of inflation.
The BLS had the following to say regarding the real earnings in the United States:
All employees
Real average hourly earnings for all employees decreased 0.1 percent from November to December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from an increase of 0.1 percent in average hourly earnings combined with an increase of 0.2 percent in the Consumer Price Index for All Urban Consumers (CPI-U). Real average weekly earnings decreased 0.1 percent over the month due to the change in real average hourly earnings combined with no change in the average workweek. Real average hourly earnings increased 0.6 percent, seasonally adjusted, from December 2018 to December 2019. The change in real average hourly earnings combined with a 0.6-percent decrease in the average workweek resulted in essentially no change in real average weekly earnings over this period.
For example imagine your weekly earnings increases from $500 to $550. (That is a 10% increase in your weekly earnings. Nice!). But now imagine that the cost of goods you bought increased from $400 to $450 (that is 12.5% increase in the goods you buy). So in real terms you are actually worse off by 2.5% as your nominal earnings increased by 10% but the inflation rate of the goods you buy increased by 12.5%. So real earnings is there to show your actual weekly and monthly earnings after removing the effects of inflation.
The BLS had the following to say regarding the real earnings in the United States:
All employees
Real average hourly earnings for all employees decreased 0.1 percent from November to December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from an increase of 0.1 percent in average hourly earnings combined with an increase of 0.2 percent in the Consumer Price Index for All Urban Consumers (CPI-U). Real average weekly earnings decreased 0.1 percent over the month due to the change in real average hourly earnings combined with no change in the average workweek. Real average hourly earnings increased 0.6 percent, seasonally adjusted, from December 2018 to December 2019. The change in real average hourly earnings combined with a 0.6-percent decrease in the average workweek resulted in essentially no change in real average weekly earnings over this period.
Production and nonsupervisory employees
Real average hourly earnings for production and nonsupervisory employees decreased 0.2 percent from November to December, seasonally adjusted. This result stems from a 0.1-percent increase in average hourly earnings combined with an increase of 0.3 percent in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Real average weekly earnings decreased 0.2 percent over the month due to the decrease in real average hourly earnings combined with no change in average weekly hours. From December 2018 to December 2019, real average hourly earnings increased 0.7 percent, seasonally adjusted. The change in real average hourly earnings combined with a 0.6-percent decrease in the average workweek resulted in a 0.1-percent increase in real average weekly earnings over this period.
Real average hourly earnings for production and nonsupervisory employees decreased 0.2 percent from November to December, seasonally adjusted. This result stems from a 0.1-percent increase in average hourly earnings combined with an increase of 0.3 percent in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Real average weekly earnings decreased 0.2 percent over the month due to the decrease in real average hourly earnings combined with no change in average weekly hours. From December 2018 to December 2019, real average hourly earnings increased 0.7 percent, seasonally adjusted. The change in real average hourly earnings combined with a 0.6-percent decrease in the average workweek resulted in a 0.1-percent increase in real average weekly earnings over this period.
The summary below shows the real average hourly and weekly earnings for all employees on private non farm payrolls:
2019 2018 % change month on month % change year over year
Real average hourly earnings: $10.96 $10.89 -0.1% 0.6%
Real average weekly earnings: $375.77 $375.82 -0.1% 0.0%
2019 2018 % change month on month % change year over year
Real average hourly earnings: $10.96 $10.89 -0.1% 0.6%
Real average weekly earnings: $375.77 $375.82 -0.1% 0.0%
Brief background of the earnings series
The earnings series presented in this release are derived from the Bureau of Labor Statistics’ Current Employment Statistics (CES) survey, a monthly establishment survey of employment, payroll, and hours. The deflators used for constant-dollar earnings series presented in this release come from the Consumer Price Indexes Program. The Consumer Price Index for All Urban Consumers (CPI-U) is used to deflate earnings for the all employees series, while the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to deflate earnings for the production and nonsupervisory employees series.
Earnings series from the monthly establishment survey are estimated arithmetic averages (means) of the hourly and weekly earnings of all jobs in the private nonfarm sector of the economy, as well as of all production and nonsupervisory jobs in the private nonfarm sector of the economy. Average hourly earnings estimates are derived by dividing the estimated industry payroll by the corresponding paid hours. Average weekly hours estimates are similarly derived by dividing estimated aggregate hours by the corresponding number of jobs. Average weekly earnings estimates are derived by multiplying the average hourly earnings and the average weekly hours estimates. This is equivalent to dividing the estimated payroll by the corresponding number of jobs. The weekly and hourly earnings estimates for aggregate industries, such as the total private sector averages printed in this release, are derived by summing the corresponding payroll, hours, and employment estimates of the component industries. As a result, each industry receives a "weight" in the published averages that corresponds to its current level of activity (employment or total hours). This further implies that fluctuations and varying trends in employment in high-wage versus low-wage industries as well as wage rate changes influence the earnings averages.
The earnings series presented in this release are derived from the Bureau of Labor Statistics’ Current Employment Statistics (CES) survey, a monthly establishment survey of employment, payroll, and hours. The deflators used for constant-dollar earnings series presented in this release come from the Consumer Price Indexes Program. The Consumer Price Index for All Urban Consumers (CPI-U) is used to deflate earnings for the all employees series, while the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to deflate earnings for the production and nonsupervisory employees series.
Earnings series from the monthly establishment survey are estimated arithmetic averages (means) of the hourly and weekly earnings of all jobs in the private nonfarm sector of the economy, as well as of all production and nonsupervisory jobs in the private nonfarm sector of the economy. Average hourly earnings estimates are derived by dividing the estimated industry payroll by the corresponding paid hours. Average weekly hours estimates are similarly derived by dividing estimated aggregate hours by the corresponding number of jobs. Average weekly earnings estimates are derived by multiplying the average hourly earnings and the average weekly hours estimates. This is equivalent to dividing the estimated payroll by the corresponding number of jobs. The weekly and hourly earnings estimates for aggregate industries, such as the total private sector averages printed in this release, are derived by summing the corresponding payroll, hours, and employment estimates of the component industries. As a result, each industry receives a "weight" in the published averages that corresponds to its current level of activity (employment or total hours). This further implies that fluctuations and varying trends in employment in high-wage versus low-wage industries as well as wage rate changes influence the earnings averages.