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Noah Smith

How Econ Numbers Can Lead You (and Me) Astray

It pays to be careful when highlighting hot new data points.

Confusing, huh?

Confusing, huh?

Source: Barcroft Media/Barcroft Media/Getty Images

The other day, in a column discussing the short-term impacts of President Donald Trump’s tax cut, I showed data indicating that the tax cut hadn’t yet led to any appreciable rise in wages. One of the things I used was a graph from the website PayScale, which collects online survey data about compensation from millions of its users. PayScale’s data showed real wages dropping precipitously in the second quarter of 2018 -- an annualized rate of almost 7 percent. Social media being what it is, the PayScale wage graph was rapidly turned into a widely shared meme. Claims that real wages were falling off a cliff as a result of Trump’s tax policies proliferated.

That probably isn’t true. Official measures of real wages show little to no change in the second quarter. The “wages and salaries” portion of the Employment Cost Index, released by the Bureau of Labor Statistics 13 days after my piece, showed nominal wages increasing by 0.5 percent in the second quarter of 2018. That’s exactly the same as the rate of inflation for that quarter, indicating that real wages neither rose nor fell. The BLS reports that when benefits are included, total real compensation actually rose by 0.1 percent in the second quarter -- an anemic rise to be sure, but nothing like the plunge reported by PayScale.