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Reconciling the divergence in aggregate U.S. wage series
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Reconciling the divergence in aggregate U.S. wage series

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  • Julien Champagne

    (Bank of Canada)

Abstract

This paper documents the gradual divergence in trend growth and business cycle volatility of two popular aggregate hourly wage series for the U.S. economy: average hourly compensation from the Labor Productivity and Cost (LPC) program and average hourly earnings from the Current Employment Statistics (CES). While the LPC wage increased by about 70% over the past four decades and became markedly more volatile starting in the 1980s, the CES wage grew by only about 20% over the same period and experienced a large drop in volatility post-1980. We establish that the divergence between the two aggregate hourly wage series is due to the different evolution of average labor earnings. Average hours worked, by contrast, evolve very similarly. We then use labor earnings data from the Current Population Survey (CPS), the National Income and Product Accounts (NIPAs), and Piketty and Saez (2003) in an attempt to reconcile the divergence between LPC and CES labor earnings. Our analysis indicates that differences in earnings concept and population coverage can account for a large part of the divergence. Our analysis also shows that earnings differences between the CPS and the LPC can be attributed almost entirely to earnings of high-income individuals and supplements such as employer contributions to pension and health plans, which are included in the LPC but not in the CPS. This result is interesting in its own right given the widespread use of micro earnings data from the CPS in cross-sectional studies.

Suggested Citation

  • Julien Champagne, 2014. "Reconciling the divergence in aggregate U.S. wage series," 2014 Meeting Papers 718, Society for Economic Dynamics.
    • Handle: RePEc:red:sed014:718
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    Cited by:

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    2. Henry R. Hyatt & Tucker S. McElroy, 2019. "Labor Reallocation, Employment, and Earnings: Vector Autoregression Evidence," LABOUR, CEIS, vol. 33(4), pages 463-487, December.
    3. Hahn, Joyce K. & Hyatt, Henry R. & Janicki, Hubert P., 2021. "Job ladders and growth in earnings, hours, and wages," European Economic Review, Elsevier, vol. 133(C).
    4. Henry R. Hyatt & Tucker S. McElroy, 2017. "Labor Reallocation, Employment, and Earnings: Vector Autoregression Evidence," Working Papers 17-11r, Center for Economic Studies, U.S. Census Bureau.
    5. Maya Eden & Paul Gaggl, 2018. "On the Welfare Implications of Automation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 15-43, July.
    6. Mitra, Aruni, 2024. "The productivity puzzle and the decline of unions," Journal of Economic Dynamics and Control, Elsevier, vol. 159(C).
    7. David M. Williams, 2021. "Pay and Productivity in Canada: Growing Together, Only Slower than Ever," International Productivity Monitor, Centre for the Study of Living Standards, vol. 40, pages 3-26, Spring.

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    More about this item

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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