Saturday, March 5, 2016

Hey WSJ, Interpreting Statistics Correctly Is No Mean Feat (Falling Avg. Wage Edition)

Don Boudreaux writes WSJ:

Contrary to the tone and implication of your report on the employment data released this morning, a decline in the average wage is not necessarily bad news (“Hiring in U.S. Rebounds, but Wage Growth Slips,” March 4).

The surprisingly large increase in the number of jobs in February might well have been caused by falling wages.  For the workers who have these new jobs, being employed at whatever wages they’re now earning is better than being unemployed when wages are higher.  If (as is certain) healthy job growth is applause-worthy, and if (as is possible) this job growth would not have occurred had wages not fallen, then it is mistaken to lament this fall in wages.

Alternatively, it’s quite possible that, despite the fall in the average wage, the wage of each and every worker rose.  If most of the jobs created in February pay wages below the average wage for January, then this growth in jobs for newly hired workers can easily pull down the average wage even if no workers’ wages were cut – indeed, even if all workers’ wages rose.  In this plausible scenario, all workers’ incomes rise: newly hired workers’ wages rise from $0 to whatever wages they now earn, while non-newly hired workers also enjoy higher wages.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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