White House says wages are growing faster than 'traditional measures' indicate

Key Points
  • The Council of Economic Advisers says "traditional measures" are underestimating wage gains for American workers.
  • Using more accurate gauges suggest real payroll growth adjusted for inflation of 1.4 percent to 1.9 percent, according to a council analysis.
  • Policymakers at the Federal Reserve and elsewhere have been stumped by the apparently lack of wage growth.
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Many of the ways that wages are measured are underestimating the amount of gains for American workers, the White House said in a report Wednesday.

Worker compensation adjusted for inflation and taxes has increased 1.4 percent to 1.9 percent over the past year, the analysis from the Council of Economic Advisers maintained in response to headline gauges that suggest real wages essentially have been flat.

The council said that "traditional measures" such as average hourly earnings, median weekly earnings and the Employment Cost Index don't sufficiently account for important variables. Among them are benefits such as bonuses, health insurance and retirement plans, new entrants to the labor force and more accurate inflation indexes. 

"Once these adjustments have been incorporated to better reflect the actual experiences of workers, real compensation growth over the past year has been substantially higher than that observed in headline wage measures," the report said.

While the economy has showed substantial growth since President Donald Trump took office, policymakers have been stumped over the apparent lack of paycheck growth for many working Americans. July payroll data indicate average hourly earnings up 2.7 percent. Comparing that number to the consumer price index's annualized gain of 2.4 percent suggests wages barely keeping up with inflation.

The council said that improving the way wages are measured will provide a more accurate picture. It suggests other measures indicate stronger wage growth.

Using the personal consumption expenditure price index, which is preferred by the Federal Reserve, suggests real wage gains of 1.4 percent over the past year. The Atlanta Fed's wage growth tracker, which incorporates nominal wage growth adjusted for taxes and benefits and deflating with the PCE index, points to 1.9 percent growth, both of which the council said is "well above the near-zero real wage change suggested by headline measures."

The Federal Reserve has been raising rates as part of an effort to control inflation, which is showing up in non-wage areas of the economy. The report said that fiscal stimulus the administration helped enact will provide more help for workers.

"With the economy growing again, so too are the real after-tax wages and real incomes of workers. Given the recent changes in economic policy, workers can expect even higher growth rates in the future," the report said.