This is another problem for the Bush Administration. Since the start of 2005 the real wage rate has been declining and in the last two months the real wage has dipped below its November 2001 level. In other words, the real wage (the hourly wage put out by the BLS adjusted for inflation) is lower now than it was 4 years ago.
[Note on the Graph: The Benchmark line represents the November 2001 wage]
What is the most likely reason for this decline? My guess is the increase in gasoline and other prices. Energy prices comprise a very important part of the CPI and can usually account for a large chunk of many increases. If one were to look at the change in the CPI less energy the changes are very modest (around 0.1%/month), but in looking at the CPI that includes energy items and the changes are much larger (5 to 6 times as large). Further, compounding to an annual rate for the last three months the percentage increase is 89%.
Now this isn’t something that Bush or any President has much control over. I’m pretty sure that every President, if they had one, would wave a magic wand over the economy and keep energy prices low and thus, help ensure that real wage rates were not eroded over time. While one could argue that recent increases in gasoline prices are in part due to the conflict in Iraq, I don’t think that is all of it. There is a great deal of speculation that the Saudi fields are peaking and starting on the downward portion of their production curve. Production from U.S. fields has been in decline for years, and usage shows few signs of diminishing. Add on top of this that right now the alternatives to the internal combustion engine aren’t ready for large scale use as well as the turmoil in the Middle East and Iraq in particular and you have all you need for high gasoline/oil prices. Then throw in a couple of strong hurricanes in the Gulf of Mexico and things can look rather depressing for the worker who earns an hourly wage.
Still this is a problem for the Bush Administration since people have now come to expect the President to do something about their living standards. So the President or his press secretary is going to go into the Rose Garden and talk about how wonderful the economy is. Every little bit of good economic news, no matter how trivial, will be trumpeted and linked to the President’s policies. This is standard operating procedure for Presidents (yes, all of them). The reason they do this is because in reality President’s have little control over things like the real wage…after all, what President can control Hurricane’s and Sauid oil field production?
