The Labor Department measures wages and salaries in many different forms:
- Average Hourly Wage
- Median Weekly Earnings
- Employment Cost Index
- Employer Costs for Employee Compensation
- Compensation per Hour
- Unit Labor Costs
Each measure has pros and cons when it comes to capturing true wage trends and inflation pressures in the economy. Unit labor costs, for instance, take into account productivity, but growth can be very volatile. The average hourly wage is timely and broad-based, but it can be affected by shifts in employees between high- and low-paying positions.
To find out which best correlates with quarterly core inflation, the J.P. Morgan economists regressed yearly inflation (using the Fed’s preferred measure, the personal consumption expenditure index excluding food and energy) on year-over-year percent changes of the various wage gauges.
The best fit came with the employment cost index. “It would seem the ECI’s strengths outweigh its weaknesses,” they conclude.
(Source: WSJ)
