February 18, 2016
U.S. Workers Got a Raise Last Year
It probably doesn’t feel like it, but workers got a decent pay raise in 2015.
Inflation last year was an improbably low 0.7 percent, and the fairly strong job market helped, too, by pushing up average hourly wages by 2.6 percent. Together, these translate to nearly a 2 percentage point increase in workers’ pay. Wages rose again in January by one-half percent, which was the second-best monthly increase in the current economic expansion. Minimum wages are also going up in many states.
It gets even better, based on an analysis by the American Institute of Economic Research (AIER) in western Massachusetts. An inflation measure designed by AIER that it calls the everyday price index, or EPI, actually declined last year. As its name implies, the EPI gauges changes in prices for things that are necessary for daily living, such as utilities and groceries, and excludes infrequent big-ticket items such as cars, homes, appliances, and even clothing. For this reason, it also weights gasoline more heavily than the standard consumer price index (CPI). The EPI declined 1.4 percent for the 12-month period ending in November, the latest data available, compared with the 0.7 percent increase for the CPI.
This gives workers a little breathing room after years of wage stagnation and growing inequality. The historically low inflation that makes our paychecks go farther is being subdued by a combination of plummeting gasoline prices and a strong U.S. dollar, which reduces the prices for goods made overseas and purchased by Americans. For example, television prices didn’t increase at all last year, according to AIER.
Not all consumers benefit from low inflation, however. AIER calculates a special EPI for urban renters. This rose 2.1 percent, because they buy a basket of goods, such as city rents, that are going up in price. The EPI also puts a lot of weight on restaurant meals, which are getting more expensive.
Retired couples’ EPI increased 0.3 percent, in contrast to the overall EPI’s decline. This index underweights gas – retirees don’t commute – and puts more weight on prescription drugs and medical costs, which are rising in price.
While it’s true that not everyone benefits from these trends, we’ll take what we can get.