If you didn’t get a pay rise of at least 6.2% in the last year, you got a pay cut

The Biden administration has a shifting stance on inflation, from ‘non-existent’ through ‘good thing’ to ‘conspiracy by evil businesses’.

The pivot away from celebrating inflation as a sign of economic health is easy to understand. What matters for economic well-being is not nominal wage increases but real wage increases, a rise in the number of goods and services you can buy. It does you no good if your wage goes from $10 an hour to $20 an hour if the price of the things you buy also doubles.

Many Minnesotans are in that situation right now. Last week, Fox 9 reported:

Inflation is matching increases in Minnesota workers’ average hourly earnings nearly dollar-for-dollar, meaning workers are seeing little real benefit from their paycheck gains.

The average hourly wage was $33.43 in October, up 6.3 percent from a year earlier and 8.7 percent over the past two years, according to Minnesota Department of Employment and Economic Development data. U.S. inflation, measured by the Consumer Price Index, was up 6.2 percent for the year and 7.5 percent for the two-year period.

There is some nuance to this picture:

“Wages have shown strong growth during the recovery, with increases tracking this very sharp rise in inflation,” said Oriane Casale, the director of labor market information for the Minnesota Department of Employment and Economic Development. “High-demand, low-wage jobs are seeing even stronger wage growth than jobs overall.” 

Indeed, the average wage for production and retail workers in Minnesota increased 7.7 percent for the year and 12.1 percent over two years, while food service wages were up even more: 9.7 percent over a year earlier and 13.9 percent in the past two years.

So, where do you fit into this? Using the Consumer Price Index for All Urban Consumers: All Items in U.S. City Average (CPI) which is produced by the Bureau of Labor Statistics (BLS), we can see that the CPI has increased by 6.1 percent from November 2020 to October 2021 (the official release says 6.2 percent, the result of a rounding difference). In other words, something that cost you $100 last November will cost you $106.05 now. So, if your income didn’t go up by 6.2 percent over that period — to use the BLS’s rounding — you either have to buy less of this good or, if you want to consume the same amount of it, less of something else. Simply put, if you didn’t get a rise in your nominal pay since last November of at least 6.2 percent, in real terms you got a pay cut.