If It Bleeds It Leads, Inflation Edition

By normal standards, the U.S. economy continues to look very good. Unemployment has now been below 4 percent for 27 months, and inflation remains fairly low, albeit somewhat higher than the Federal Reserve’s target of 2 percent. But if you say that, you get a lot of pushback; some get angry.

Much of that pushback is partisan. Donald Trump described Friday’s jobs report, in which the unemployment rate rose — wait for it! — to 3.87 percent from 3.83 percent, as “horrible,” and I’m sure that many Americans believed him.

But it’s not all partisan. Some of the pushback comes from readers who are, if anything, to the left, and say something like this: “Well, maybe the economy is strong, but all the gains have gone to people at the top.” Or “official inflation may be low, but prices of essentials like food and energy have hugely outpaced wage gains.”

So I thought it might be worth putting together some data to show that these assertions aren’t actually true — and describing some new research that may help explain why many people think they’re true.

Let’s start with the claim that recent growth has benefited only the affluent. Not many people seem to know this, but the truth has been nearly the opposite. Since the pandemic, wages for lower-paid workers have risen substantially faster than wages for the highly paid, a phenomenon David Autor, Arindrajit Dube and Annie McGrew call “The Unexpected Compression.” Here, for example, are growth rates for wages among the lowest- and highest-paid quarters of the work force, as estimated by the Atlanta Fed:

Credit…Federal Reserve Bank of Atlanta

But, you may say, maybe wages are rising faster at the bottom, but inflation also hits low-wage workers harder. That’s a reasonable objection. But how big an issue is it? It turns out that the Bureau of Labor Statistics has experimental measures of inflation at different income levels.

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