Average hourly earnings for American workers rose 2.7 percent in July from a year earlier, according to the Bureau of Labor Statistics, while the Consumer Price Index rose 2.9 percent. That means real wages and purchasing power are essentially stagnant.

Council of Economic Advisers Chair Kevin Hassett asked in a press conference: “How can we not have wage growth in such a tight labor market with such high economic growth?” The CEA has answered that economists should consult a broader and more comprehensive set of wage and price measures. By doing so, the CEA arrived at an annual rate of compensation growth of 1.4 percent by taking into account the value of employer-provided benefits like health insurance, paid vacation and retirement plans; the impact of Trump administration tax cuts; demographic changes, such as the retirement of higher-paid baby boomers as lower-paid young people enter the workforce; and using the Personal Consumption Expenditures index, a lower measure of price inflation than CPI (PCE is the measure favored by the Federal Reserve).

Many economists agree that average hourly earnings and CPI data do not fully capture the scale of compensation increases at this point in the economic cycle. But adopting the measures urged by the CEA could distort the data in other ways, over-weighting employer-provided benefits that mostly accrue to higher-income full-time workers. The long-term recurring impact of tax cuts on earnings, meanwhile, is speculative, many economists argue. And public opinion polls show that Americans care most about their cash compensation — the amount of money they take home in every paycheck.

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