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.