Wages vs. Employment to Population Ratio.

The relationship between wages and the supply and demand for labor may be divided into two time periods.  In the most general sense, the trend for employment to population ratio changed in the year 2000. The yearly trend, from 1985 through 2012 is show here.


From 1985 through 2000, the employment to population ratio rose from 60.4% to 64.4%.  This trend was a continuation of the upward trend that began in 1962.   From 2000 through 2012, the employment to population fell, from 64.4% to 58.3%, in 2009 when the global economy receded.  From 2009 to 2012, has remained relatively flat, rising .3%.

The relationship between wages and the supply of labor becomes apparent when the wage index is presented as a function of the employment to population ratio.  This is shown here.


From 1985 through 2000, the global economy continued on the upward growth that began after the end of WWII.  This growth created a demand for labor.  As the availability of labor tightened up, the wages increased.  After 2000, changes to the global economy shifted the labor market leverage from the supply side to the demand side.

Linear regressions may be accomplished in Excel or at ttp://www.xuru.org

Notably, recessionary periods of  1990, 2000, and 2007 show up as an additional decrease on top of the general trend of falling AWI to EmpRatio. They are offset slightly from the official NBER dates though NBER resolution is to the month while data here is to the year.

A dummy variable may be introduced for declines in EmpRatio.  This provides the addition of regressions for the entire time period as well as two periods seperated by the year 2000.

The online tool provides for multiple linear regression with may be compared by residual sum of squares.  The results for sum of squares are show below with the best RSS with two periods seperated at 2000 and a multiple regression on an AWI dummy variable.

Single Variable

Full Data                              52,218,458.52

1985 through 2000            3,686,210.435

2000 through 1985           993,570.5394

Multiple Regresion, Dummy on EmpRatio

Full Data                              46,885,620.06

1985 through 2000            3,634,240.307

2000 through 1985           950,598.2904

Multiple Regresion, Dummy on AWI

Full Data                              52,218,414.03

1985 through 2000            3,034,561.403

2000 through 1985           898,929.0276

This seems to make the case that wages are sensitive to demand for labor.

Data Source:

BLS : http://data.bls.gov/cgi-bin/surveymost?ln

SSA : http://www.ssa.gov/oact/cola/awidevelop.html

CPI : ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt


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