Street Signs

Wages Still Playing Catch-up With Productivity Gains

By Scott Reeves

David Kelly, senior economics advisor for Putnam Investments, told CNBC’s “Street Signs” that the 4% year-over-year gain in hourly wages is encouraging, but still lags productivity growth.

“We are just seeing some catch-up here,” he said. “For most of this expansion, workers have been lagging behind. It’s good to see wages growing at about a 4% pace year-over-year. But for most of this expansion, workers have not received the productivity gains they have achieved. So, this has been a great expansion for corporate profits -- not a great expansion for the average worker.”

Employment Analysis

But he said the figure understates true income growth because it doesn’t include illegal immigrants, the self-employed or executives.

He also noted that higher wages aren’t an inflationary threat as long as productivity remains strong.

“The increase of wages over and above inflation should be equal to productivity and it’s only just getting there,” Kelly said. “I think it’s good to see these wage gains, but overall, I think [the] threat of too-slow economic growth is greater than the threat of inflation.”

Jason Benderly, founder of Benderly Economics, concurred that inflation isn’t a major risk.

“When we look through all of the noise in these numbers, we conclude that the trend of unit labor cost growth is in the 2.5% to 3% range, and that puts a floor under the core CPI and core deflator,” he said. “So, at some point we do think the core inflation will be back above 2.5% and that will lead, probably in the second half of the year, to the Fed continuing to tighten.”