With this blog post, I review changing hourly wage rates across the U.S. economy from 2012 to present (as of April 2023). Considered is the pattern of month-to-month changes and overall trends pre- and post-pandemic by economic sector.

Key observations are essentially three-fold:

The pace of wage growth has accelerated over the last decade — both as a contributor and response to inflationary pressure.
From the pandemic to present, annualized wage gains have ramped up to more than double the pace of wage increases pre-pandemic — also wage trends are now more volatile than previously experienced.
Workers most benefitted — especially since 2020 — have been retail and hospitality at the lower end of the wage scale. Their recent gains are long overdue and would be jeopardized if the U.S. now goes into recession in the continued fight by the Federal Reserve to bring inflation back too quickly to the Fed’s 2% annual inflation target.

Monthly Change Pattern & Volatility

The following graph depicts monthly changes in year-over-year % wage changes across all private non-farm employment in the U.S. Changes are calculated as the average of a particular month’s average wage as compared with the same month’s wage figure one year earlier.

Source is U.S. Bureau of Labor Statistics Current Employment Statistics (BLS/CES). Time series data is from January 2012 - April 2023 with one month’s change calculated relative to the the same month one year earlier. For example, the change figure for January 2013 is calculated as the % change from January 2012 to January 2013. The curvilinear trend is calculated as an exponential function which provides a better albeit imperfect statistical fit (or R-square) than a straight-line linear trend. the BLS/CES data series does not include wage rate data for the governmental sector.

Over this full time period from 2012 to 2023 year-to-date (YTD), overall private sector wages have increased by a compound annual growth rate (CAGR) of 3.4% per year. Two distinct periods can be identified over this approximately 10-year time frame:

Wage rate increases averaging 2.5% per year from 2013-19 — albeit with monthly variations of generally up to about +/- 1% point above or below the overall trend.
Wage rate growth escalating to a 5.4% annualized rate from 2020 (with pandemic) to 2023 YTD — and with substantially greater month-to-month volatility.

Much of the monthly change volatility is associated with disparate employment impacts of the pandemic. For example, the nearly 8% wage spike of April 2020 reflects mass layoffs early in the pandemic — concentrated with lower wage retail and hospitality (including dining) sectors. With low wage sectors laid off, the wage average for all remaining employed workers increases — in this case a skewed indicator of overall worker prosperity.

Also noted is the upward trend in wage rates over this full time period - gradually occurring even pre-pandemic. For example, annualized wage increases averaged 2.0% year-over-year in 2013, increasing to a 3.3% annual wage gain in 2019 — then spiking further in subsequent years through the pandemic and subsequent economic recovery. In effect, there was clear evidence of growing upward wage inflationary pressure building throughout the past decade — providing a cautionary warning well ahead of the CPI inflationary spike coming to a head in 2022.

Of most recent concern — especially for the Federal Reserve — is the increase in wage rates from a 4.2% annualized rate in March 2023 to a 5.1% increase in April. This suggests potentially more difficulty ahead to dampen inflation — especially if primary reliance continues to be placed on interest rate increases to achieve the Fed’s 2% long-term annual inflation rate objective.

Wage Gains by Sector

A deeper dive is possible by reviewing wage rate experience by sector — also distinguished by pre-pandemic versus 2020 to present experience. This is illustrated by the following chart covering 13 major sectors of the private sector U.S. economy.

Source: BLS/CES Governmental sector wage information is not provided by this BLS dataset, as wage information is limited to private sector non-farm employment.

As indicated by the graph:

From 2013-19, the most rapid wage gains pre-pandemic occurred with the information sector — largely attributable to software and internet related employment — with wages increasing by just over 4% on an annualized basis. Of added note is that the historically low-wage leisure and hospitality sector experienced the second highest rate of wage gains, up by just over 3% per year.
From 2020-present, leisure and hospitality moved up to #1 wage gainer, with wages increasing at an annualized rate of 7.3% per year — followed by retail workers with wages up at a nearly 6% annual rate. This has occurred in response to the great difficulty of re-hiring lower wage customer service (or front-line) workers laid off in the pandemic — with resulting pressure to hike wages (and benefits) as a means to entice workers back.

What About Government Workers?

While the BLS Current Employment Survey (CES) does not provide wage information for government workers, a separate Quarterly Census of Employment & Wages (QCEW) database does provide public sector wage data — in terms of average weekly wages. As of the 3rd quarter of 2022 (for the most recent information currently available), the average weekly wage for federal employees was 148% of the average wage across all industry sectors. State government was 9% and local government 1% above the all industry average. Despite more rapid pay increases recently, leisure and hospitality wages had moved up to just 45% of the all industry average (as of 2022/Q3).

In terms of changes, leisure and hospitality wages have improved their position relative to the government sector, especially in the most recent period from 2019-2022/Q3. Within government, state and local governments have experienced more rapid wage increases since 2019 — but still remain well below average federal pay levels.

Take-Aways

While unfortunately the private and public sector data are not fully comparable, it appears that the greatest beneficiaries of upward wage pressure over the last decade (and especially from 2020 to present) have comprised two very different groups of U.S. workers:

Lower paid hospitality and retail workers — whose recent and long-overdue pay increases have provided improved equity across the wage spectrum — but for whom further gains could be jeopardized if the U.S. economy goes into recession in an effort to bring inflation back too quickly to the Fed target rate of 2% per year.
Government employees — especially those employed by state and local governmental entities — whose wage increases through the pandemic and recovery have exceeded average wage gains across all private and private sector workers combined. These public sector workers generally were already receiving pay at or above the all industry average (except for those in local government).

To summarize, this review indicates that the pace of wage growth has accelerated over the last decade, first as a contributor and then a response to inflation. With the pandemic, wage gains have ramped up to more than double the pace of payroll gains experienced pre-pandemic. And paradoxically, while inflation negatively affects most households, lower income service workers have at least benefited from above average wage gains — a benefit long overdue.

Postcript: ChatGPT on BLS Wage & Hours Data

In compiling comparative wage information for this blog post, the following data question surfaces:

Why doesn't the U.S. Bureau of Labor Statistics report wage and hours data with its CES survey for government employment when this data is included for other employment sectors?

Not readily finding the answer via a quick Google search, this question was posed to ChatGPT. Here is the response of May 4, 2023:

The U.S. Bureau of Labor Statistics (BLS) collects and reports data on employment, wages, and hours for various industries and sectors through a number of surveys, including the Current Employment Statistics (CES) survey. However, the CES survey does not include wage and hours data for government employment.

One reason for this is that government employment is typically subject to different laws, regulations, and collective bargaining agreements than other sectors. As a result, the collection and reporting of wage and hours data for government employment requires a different approach and may involve additional challenges.

Furthermore, the BLS does collect and report data on wages and hours for government employees through other surveys, such as the National Compensation Survey (NCS). The NCS is a separate survey that focuses specifically on compensation practices and trends for private and public sector employees in the United States.

In summary, the BLS collects and reports data on wages and hours for various sectors and industries through different surveys, and the exclusion of this data from the CES survey for government employment is likely due to the unique nature of government employment and the need for specialized data collection methods.

Helpful, yes - somewhat. However, the answer remains not entirely clear.

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