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Should US Average Hourly Earnings Actually Be $75? If AHE Had Advanced with GDP, It Would Be…

Average hourly earnings (AHE) is a commonly used measure for “wages” in the economy and is often cited as a reason for the Federal Reserve to tighten or ease monetary policy. AHE is the average dollar amount that a private employee makes per hour in the US. It also helps Americans see how they are doing from a wage perspective regarding their position in the economy.

The Bureau of Labor Statistics (BLS) publishes the popular measure of AHE in the employment situation report on the first Friday of each month. Here is the latest report as of September 14, 2021. Below is a nice chart (see source) that shows the inflation-adjusted view of AHE historically.

Historical Real Average Earnings August 2021

What the above chart shows is that AHE has not improved since 1973. It rose only $0.08 from $9.44 to $9.52 using a base index of 1982 to 1984. In actual terms, the AHE today is $30.73. 

When juxtaposing the AHE against the overall economy, we note that the unadjusted US GDP in 1973 was about $1.38tn. When using the BLS Inflation calculator, the GDP would have been $8.8tn today. However, the actual GDP is $22.7tn. What gives?

Gross Domestic Product August 2021

If the average American worker had participated in the economy at the same rate as GDP gains, the AHE would be about $75.

The Economic Policy Institute states that the income, wages, and wealth generated over the last four decades have failed to “trickle-down” to the vast majority largely because of policy choices made on behalf of those with the most income, wealth, and power have exacerbated inequality. In essence, rising inequality has prevented potential pay growth from translating into actual pay growth for most workers. See here for some potential reasons for this, and a summary chart below that shows this pictorially.

Getting the productivity vs. pay gap back in line for the greater society is even more critical than just for ourselves individually. Remember that this gap is growing even further at an exponential rate. To a large part, it is driving the social dis-cohesion we see today in society. The frustrations of this gap are driving many to blame each other – via class and race divisions.

Does it start here? Emerging-market policymakers scramble to tame soaring food inflation as unrest looms – click here.

SocGen’s market skeptic Albert Edwards pointed out last year why he started to panic about soaring food prices and how it may cause social unrest in emerging market economies. In July, Bloomberg acknowledged the same phenomenon, and now they point out politicians are searching for policies to neuter the effect of surging costs to thwart unrest.

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Pandemic-driven hunger is sweeping the world as global food prices jumped 33% in August from a year ago. According to United Nations Food and Agriculture Organization data, vegetable oil, grains, and meat prices are surging. Extreme weather, record-high shipping costs, soaring fertilizer costs, labor shortages, and port congestion are also aiding in increasing prices.

 RWR original article syndication source.