This is my fourth entry into the “is the economy good” debate (I, II, III). Since I published my last piece on this, the debate has turned to the question of wages as this is perceived to be one of the strong parts of the current economy.

The discourse on wages has gotten bogged down because one of the key metrics used to talk about wages went haywire a few years ago, as we can see in the below graph.

At a glance, it appears that this graph shows wages running up in early 2020 and then collapsing since then. And some people have made the mistake of interpreting it that way.

One response to that interpretation is to point out that median wages spiked in early 2020 because, during COVID, a disproportionately high number of below-median earners were laid off, which drove the median up due to a composition effect.

One response to this is to point out that if we look at the fourth quarter of 2019, which was the last quarter before COVID, the real wage is $362. Now nearly four years later, it sits only $3 higher at $365. Four years of zero wage growth is also something that could perhaps bother people.

But there is another way to tackle the wages question that does not just compare one cross-section of the wages distribution to a prior cross-section of the wages distribution. In the Current Population Survey (CPS), you can actually track the wages of specific individuals over a one-year time period. This sort of longitudinal measure of wages does not suffer from the same kind of compositional problems as the cross-sectional measures do because it ensures that the composition of the individuals being measured is exactly the same across the two periods.

The Atlanta Federal Reserve puts out a Wage Growth Tracker using this matched CPS data. The Wage Growth Tracker, as the name suggests, does not track wages but rather tracks wage growth. What this means is that the Atlanta Fed takes each matched individual in the CPS, calculates the percent change in their wages, and then sorts those individuals from lowest to highest based on their percent changes. Thus, in this data, median wage growth is defined as the percent change in wages that is right in the middle of all percent changes in wages.

In the graph below, I plot this Wage Growth Tracker data after making an inflation-adjustment using the CPI.

From this, it’s clear that most workers saw their real wages decline throughout nearly all of 2021 and 2022. Positive real wage growth only resumed in February of this year.

To repeat what I said above: unlike the first graph, this figure is not being driven by changes in the composition of the workforce as these are matched individuals that had positive earnings in one month and then again twelve months later.

I point this out not to say that this is Biden’s fault or to say that this necessarily describes why any given person tells a survey-taker that they think the economy is bad. These are murkier questions that are harder to answer. But objectively speaking, most wage-earners who have been consistently working over this period have not had a positive experience with their real wages for most of Biden’s presidency.

It is not crazy to suppose that, fair or not, this could in some way be affecting people’s attitudes toward the economy.