Sep 5, 2018

White House claims it solved the wage growth puzzle

Data: Council of Economic Advisers; Note: CEA calculation is after tax and adjusts for demographics of workforce, work benefits and a different measure of inflation. "CPI adj." is only adjusted for the Consumer Price Index, used by Bureau of Labor Statistics; Chart: Andrew Witherspoon/Axios

White House economists believe wage growth has climbed at a faster rate than what's been previously calculated, according to new data released Wednesday.

Why it matters: Unemployment is nearing a 20-year low, but wage growth has been meek — 0.1% in the second quarter from a year earlier, according to the Bureau of Labor Statistics — leaving economists scratching their heads. But the White House's new calculations put that wage growth figure at 1.4%.

The White House argues that the traditional methodology doesn't adjust for lower-skilled or younger workers coming into the workforce (who typically have lower wages) and would-be retirees leaving the workforce (who usually are paid more.)

The White House said this measure should account for other ways workers are compensated, including bonuses, paid time off, and health benefits.
Officials also said a different measure of inflation should be used in wage growth calculation.
Top Trump economic advisor Kevin Hassett said in a media call that this effort is not a criticism of the data released by the Bureau of Labor Statistics, which said it could not comment.

The bottom line: Most economists are still likely to cite the BLS's traditional measures of wage growth but, some say, the White House asks an appropriate question about how income is measured.

"While you can say the motivation [for the measurement adjustment] was political, what comes out at the other end is a legitimate issues regarding mis-measurements," said Steve Blitz, an economist at TS Lombard, a research firm.
"They are not the first administration to do this and they are certainly not the last," Blitz added, citing the Obama and Nixon years.

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