January 29th, 2016

The table below is from today’s release of the Employment Cost Index, a metric of compensation growth–not just wages, but benefits too–that the Fed cares about. The ECI “measures the change in the cost of labor, free from the influence of employment shifts among occupations and industries.” IE, in order to get a purer take on wage pressures, the BLS holds the job mix constant in a base year and looks for comp changes that are not driven by workers’ movements between inds and occs.

Yes, the job market’s tightening, and I’ve seen and documented some slight tick-up in wages in other series. But I see nothing by way of inflationary wage or compensation pressures out there. If anything, the rate of benefit growth has slowed; growth rates of employer-provided benefits, both health and total, have been stuck near historic lows for the past few years.

Whether this is because the job market isn’t as tight as the unemployment rate suggests, workers still don’t have a lot of bargaining power, low inflation is boosting real earnings so there’s less pressure to raise nominal earnings, or American employers have just basically long forgotten how to raise anybody’s pay, I don’t know.

What I do know, is that given the rate of inflation–the PCE rose 0.4% last year; the core PCE rose 1.4%; the Fed’s target is 2%–and the lack of wage pressure, if I controlled the world federal funds rate, I’d keep my hands off of it.