« Adaptive Expectations, Rational Expectations, and Learning in Macroeconomic Models | Main | Power, Not Socialism »

Tuesday, July 25, 2006

Promises, Promises

Dan Gross is unhappy with Ed Lazear:

Lazear Beam, by Dan Gross: It's tough being part of the Bush economic team, in large part because there are so many of chunks of the recent record that are difficult to defend/spin. Indeed, it's been my experience that the academic types who have served in the administration are, as a group, far more intelligent, honest, and engaging as private citizens than they were as public servants. Looks like Ed Lazear, chairman of the Council of Economic Advisors, is going to be in that same mold. Edward Luce and Krishna Guha report in the Financial Times.

The US is now in its fifth year of growth since the last recession. Yet median weekly earnings ... have fallen by 3.2 per cent in real terms since the start of the recovery in October 2001. Similarly, average hourly earnings for non-managerial workers have fallen by 0.6 per cent since the last quarter of 2001, according to the US Bureau of Labor Statistics. This contrasts with previous US recoveries, in which wage growth started to overtake inflation at a much earlier stage in the cycle...

Senior administration officials believe the public's frequently expressed economic dissatisfaction - more than two-thirds of Americans believe their country is heading in the wrong direction - reflects Washington's inability to get its message across to the US heartlands. There is particular concern about declining support for trade liberalisation.

Ed Lazear, chairman of the president's Council of Economic Advisors, says the growing focus on wage stagnation is misleading for two reasons.

First, there are signs that hourly earnings growth is beginning to accelerate after an unusually long lag. And second, the measure fails to capture broader growth in worker compensation, which includes pensions and healthcare provided by employers.

"Hourly wages have grown more slowly than total compensation," Mr Lazear said in a speech last week. "The relevant measure is total compensation." Mr Shapiro disagrees: "This is not about whether the American public is hearing the right message - it is about what most people are experiencing."

Translation: "We're not pissing on you. It's just raining."

Note the super-hyper conditionality attached to the discussion of wage growth: there are signs that hourly earnings growth is beginning to accelerate.

And regarding overall compensation, he must be kidding. It may be true that wages are growing more slowly than overall compensation due to increased spending on health benefits and pension. In fact, for many people, they're not growing at all. But I'd bet a lot of that growth in benefits spending has to do with inflation in health care, not in a broadening of benefits. ...

Lets say a worker gets no raise, and his employer spends 5 percent more on the worker's health insurance, Lazear would say his compensation has risen 5 percent. But what if the cost of health insurance rose 8 percent last year and the employer isn't willing to pay for it? The employer tells the employee he has to pay higher co-payments and take a higher deductible for the same plan, and the worker does not see any net increase in his total compensation.

And pensions? Lazear has got to be kidding here, too. Is there any evidence that workers who aren't getting wage increases are getting big pension increases? If so, I haven't seen it. ...

Ugh.

[The bold text is from the original.] Update: Here's a bit more from the article on Larry Summers joining Robert Rubin in an attempt to draw more attention to lagging U.S. wages:

Summers and Rubin to highlight lagging US wages, by Edward Luce and Krishna Guha, Financial Times:  Larry Summers, the last Treasury secretary of the Clinton administration, will on Tuesday join Robert Rubin, his immediate predecessor, in a high-profile drive to highlight stagnation in wage growth for the majority of workers in the US economy.

The issue, which is starting to catch fire among a number of prominent US groups, including the prestigious Brookings Institution, ... challenges the administration’s argument that the strong US economy has benefited all Americans. ...

Although senior figures such as Mr Summers and Mr Rubin are associated with the heyday of economic globalisation in the 1990s, the skewing of the gains of US economic growth in the last five years towards the top 10 per cent of earners has prompted a rethink on how the fruits of trade are distributed among Americans.

    Posted by on Tuesday, July 25, 2006 at 02:19 PM in Economics, Income Distribution, Politics | Permalink  TrackBack (0)  Comments (18)

    TrackBack

    TrackBack URL for this entry:
    https://www.typepad.com/services/trackback/6a00d83451b33869e200d834a5a41053ef

    Listed below are links to weblogs that reference Promises, Promises:


    Comments

    Feed You can follow this conversation by subscribing to the comment feed for this post.