Real Earnings, June 2006 – Good Month, Flatline Year

Real Earnings, June 2006 – Good Month, Flatline Year

July 20, 2006

The June Real Earnings report, released yesterday by the Bureau of Labor Statistics, shows the economy is still growing but that workers are having a hard time keeping up with price increases. You can see the report by going to the BLS website or by downloading the PDF file.


Weekly earnings of $566.13 in June increased 0.8%, driven by a 0.5% increase in hourly pay ($16.70/hour) and a 0.3% increase in hours worked. Prices increased by just 0.2%, so real weekly earnings rose 0.6%. Pretty good month.


For the full year, however, it’s a tougher story. The hourly pay for American workers was 3.9% higher in June than it was a year earlier, but the pay increase was more than offset by increased prices; real hourly pay fell 0.6& over the year. Weekly earnings were stronger due to the increase in hours worked, i.e., real growth. Weekly earnings in June were 4.5% higher than a year earlier, but only 0.1% better than inflation.

This contrast between profits growing 12-15% per year and at an all time high as a percent of GDP and flat real wages reflects the phenomenal change in global capital markets over the past 20 years. Capital owners can now move their capital anywhere in the world at almost no cost. Workers are stuck wherever they find themselves. The relative abundance of capital and scarcity of people in the U.S. compared with China and India means capital is migrating to places where it can earn higher returns. This is great for the stock market. But it is also the reason behind our increasingly contentious politics.

This story is not going to go away.


John Rutledge

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