(Bloomberg) -- The familiar narrative that U.S. wage growth has flattened over the past four decades is more complicated and problematic than it appears, new research suggests.
Households with below-median income are buying more cars and bigger houses, according to a new paper by Dartmouth College economist Bruce Sacerdote, and different inflation adjustments substantially change the wage picture. That's the first item in this week's research roundup, which also takes a look at the productivity-wage growth connection in the U.K., the intergenerational credit score tie, and stubborn U.S. seasonal data quirks. Check back each Tuesday for the latest in interesting or important economic studies.
Is wage stagnation real?
Even as lower-income pay has officially stagnated since the 1970s, consumption has climbed, Sacerdote points out. For households below median incomes, the number of cars per household has risen from 1 to 1.6 between 1970 and 2015, and median house square footage has risen about 8 percent. In total, two-people households with income below the median have posted a 62 percent increase in consumption between 1960 and 2015, and that's almost certainly a low estimate thanks to underestimated quality improvements, by his thinking.
What's more, alternative ways of measuring wage growth show slow but existent gains. Using headline personal consumption expenditure inflation data to deflate nominal wages—instead of conventionally-used consumer price inflation—suggests real wage growth of 24 percent from 1975-2015, for example.
What he doesn't explore is why people are feeling pessimistic. "A deep future research agenda would be to understand how America has lost its sense of optimism about living standards and whether the problem is one of consumption, relative consumption (relative to other people) or something entirely different," Sacerdote says.
Fifty Years Of Growth In American Consumption, Income, And Wages
Published March 2017
Available on the NBER website
The productivity-wage story is complicated
While it's commonly thought that productivity growth spurs wage growth, a look at industry data suggests that "the relationship between productivity and wages is not simple," researcher Alex Tuckett writes in a Bank of England blog post.
Productivity growth has been uneven across sectors, with agriculture and construction in the U.K. actually posting improvements, which allows Tuckett to look into whether those gains have led faster wage growth. In fact, he finds, the relationship may go both ways: while higher pay and higher productivity do come hand in hand, industries with higher wages might be seeing better efficiency gains.
Does productivity drive wages? Evidence from sectoral data
Published March 30, 2017
Available on the Bank of England website
Thanks for the credit score, Mom and Dad
Family background is a strong predictor of an individual's credit score by age 30, based on new Federal Reserve research. Credit scores are about 100 points lower for young people from disadvantaged backgrounds, and those potential borrowers are about 20 percentage points more likely to be subprime. Educational achievement can shrink the gap, but not entirely. A person's creditworthiness factors into their future economic success, so this matters a lot. Credit scores play a large role in access to financial services and, ultimately, a person's economic future. A low score could limit one's ability to buy insurance, a car, rent housing, or even secure a job.
Where Credit Is Due: The Relationship between Family Background and Credit Health
Published March 2017
Available at the Federal Reserve website
Residual seasonality: still a thing
The U.S. Bureau of Economic Analysis has been working to strip season-related fluctuations out of recent economic data, but the problems persist in GDP figures that span a longer time period, according to a new economic commentary by Cleveland Fed economist Kurt Lunsford.
Looking at GDP data from 1985 to 2015, he finds that residual seasonality shaves an annualized 0.8 percent from first-quarter readings, while second-quarter GDP growth gets a 0.6 percent boost. "This has caused a regular bounce-back effect where GDP growth appears to slow in the first quarter of the year and speed back up in the second quarter of the year," he writes. The effect was especially pronounced in the 1990s, which matters because historical GDP data are often included in statistical forecasting models.
Lingering Residual Seasonality in GDP Growth
Published March 28
Available on the Cleveland Fed website
To contact the author of this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net.
To contact the editor responsible for this story: Craig Torres at ctorres3@bloomberg.net, Sarah McGregor
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