Cletus C. Coughlin

Lesli S. Ott

English

Research Papers in Economics

December 2007 NationalEconomicTrends
Views expressed do not necessarily reflect official positions of the Federal Reserve System.
You load sixteen tons, and what do you get? 
Another day older and deeper in debt.
—Merle Travis
T
he chorus from Travis’s 1947 song about the
plight of coal miners might ring true for someone
looking at average hourly earnings (AHE) of pro-
duction and nonsupervisory workers. By this measure, as
shown in the chart, the pay for an hour of work fell in real
terms by 3 percent between 1975 and 2006. Is the average
worker actually receiving less per hour of work today
than 31 years ago? The answer is likely no. In fact, an
alternative measure of compensation, national labor
income per hour, increased 44 percent during this period.
What accounts for these conflicting results and why do
we conclude that the average worker’s real compensation
per hour has increased since the mid-1970s?
Both the AHE and the national labor income series are
adjusted for inflation. However, AHE is adjusted using
the consumer price index for all urban wage earners and
clerical workers (CPI-W), while national labor income per
hour is adjusted using the personal consumption expendi-
tures (PCE) implicit price deflator. To calculate the pur-
chasing power of an hour of work, it is more appropri-
ate to use the PCE implicit price deflator to adjust for
inflation because this index better reflects the basket of
goods and services actually consumed. Contrary to the
CPI-W, which assumes that the same basket of goods
and services is purchased for several years, the PCE
deflator is calculated using expenditures from the current
and preceding period. After applying the PCE deflator,
AHE show an 11 percent increase rather than a 3 per-
cent decrease between 1975 and 2006.
Another difference in the construction of the two
data series is that national labor income per hour
includes not only wages and salaries, but also fringe
benefits. Given the importance of benefits to a worker’s
standard of living, we think many would disagree with
the use of the label “fringe.” The benefits of employer
contributions to worker’s pension and insurance funds
and to government social insurance are included in
national labor income per hour, but are not in the AHE
series.1 These benefits have become a larger share of
worker compensation over time, rising from 14 percent
in 1975 to 19 percent in 2006. Once the AHE data are
adjusted to include estimated benefits per hour and the
PCE deflator is applied, the calculated increase in real
wages and benefits reaches 16 percent between 1975
and 2006.
Without question, the 16 percent increase in average
hourly earnings following the two adjustments described
above remains far short of the 44 percent increase in
national labor income per hour. What accounts for the
remaining difference is unclear.  Part of the difference is
likely due to the fact that the AHE is restricted to produc-
tion and nonsupervisory workers. What is clear, however,
is that the average worker is receiving more in 2006 for
“sixteen tons” than 31 years ago.
—Cletus C. Coughlin and Lesli S. Ott
1 For details on the construction of national labor income per hour and insights
on distributional issues, see Fitzgerald, Terry J. “Has Middle America Stagnated?
A Closer Look at Hourly Wages.” Federal Reserve Bank of Minneapolis The
Region, September 2007; www.minneapolisfed.org/pubs/region/07-09/wages.cfm.
research.stlouisfed.org
What Do You Get for “Sixteen Tons”?
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16
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1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005
National Labor Income per Hour
Average Hourly Earnings
Average Hourly Earnings vs. National Labor Income 
per Hour, 1975-2006 
2006 Dollars 
SOURCE: Bureau of Labor Statistics, Bureau of Economic Analysis.

What do you get for "Sixteen Tons"?

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What do you get for "Sixteen Tons"?

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