The Big Surprise, Ctd

Leonhardt's data do not ring true to many. A reader writes:

I can’t help but wonder if this is a case of the numbers giving an impression that is quite different than the realities of day to day life. I have been fortunate enough to keep my job. Like many others, my salary is frozen, because of the economy. My employer has cut their contribution to my 403B by 50%. My employer increased the amount employees pay for health insurance this past January, and they will be doing the same in January 2010. I have less take home pay and my retirement savings has taken a hit. It is hard for me to interpret this as some sort of increase in wages.

Some goods may be cheaper to purchase, but my rent increased this year. The City of Chicago increased the sales tax rate to 10.25%, and the city and state have found a hundred little ways to increase fees and fines to try to solve their budget issues. When I consider all of these other factors, I just don’t see how my wages have increased. My money just doesn’t go as far as it did a year or so ago. While Leonhardt may be right in theory, it doesn’t feel that way in practice.

Dean Baker says the data Leonhardt uses are misleading:

Most importantly he uses year over year data. This includes the large fall in prices at the end of last year, which still outweighs the impact of falling real wages through 2009. Using year over year data, we can say that real wages have risen in the last year. We will not be able to say that four months from now.

Leonhardt also uses weekly rather than hourly data. This adds to the error in the measurement, since hours are also erratic month to month, and the random movements in reported hours can easily swamp the actual movement in the hourly wage. Finally, he misreads a recent data release, the June employment cost index. This release showed an insignificant rise in the rate of compensation growth between the first and second quarter. The increase is completely driven by a modest rise in the rate of reported compensation growth in the public sector, with the private sector showing no increase at all.