January 11, 2016 – A key measure many economists look to in determining the health of the labor market is wage growth. As employment rises and the job market becomes more competitive, people look for higher paying jobs and an increase in wages. What many people fail to recognize in terms of wage growth are the pay increases they receive that do not come in the form of a pure salary bump.
In the chart below we compare the percentage change in wages to the price of oil since 2007. As we can see in Figure 1, wage growth, seen in green, has been relatively flat during this most recent recovery. But, if we look at oil prices since June 2014, we have seen a decrease of nearly 60%. Since gas costs are a portion of most people’s budgets, a decrease as significant as 60% will add a lot more money back in people’s pockets each month. This represents an increase in the amount of money they have that they did not have prior to the decrease in oil prices, otherwise a form of a pay increase.