Labor Scarcity Could Drive Wages Higher

Bob Johnson: This week, we want to look at hourly wages adjusted for inflation, so-called "real wages." There's been a lot of concern lately. We had a few months this fall when there was absolutely no growth in the hourly wage, and people said, "How can you have an economic recovery without much wage growth?" So, clearly there is an issue. But right now, we're growing in wages, on a year-over-year basis, about 0.7%. And again, that's right on the average over the last 50 years of 0.7%.

Now, if you look back in history, we've had periods where it's been a little bit higher, 1.4% between the '64 and '74 period. Then, it dipped down in the 1970s, '80s, and into the early '90s, when there was absolutely no wage growth. Then, we accelerated again with the Internet boom in the late 1990s into 2004, before slowing with the current recession.

So, what do all of these numbers mean? Well, wage growth you'd normally think is very important, and it tends to be. But sometimes, as it was in the '70s and '80s, it's offset by more people working. And so, that kind of offsets the effect. Right now, we have relatively low wage growth but not the worst that it's been. But very limited population growth.

Looking forward, I think this number will get considerably better as there is a labor scarcity, which will drive rates higher. And on top of it, especially with today's inflation numbers, we're going to have a much better inflation-adjusted wage number going forward.