Go to the St. Louis Federal Reserve FRED database, and find data on nominal wages (COMPNFB) and prices using the consumer price index (CPIAUCSL). Convert the data series to annual data by using the “frequency” setting on the website, and choose the units as “percent change from a year ago” for both data series.

a) Calculate the average percentage change in nominal wages per year and the average CPI inflation rate since 1980. How has inflation affected purchasing power over that period?

b) Calculate the average real wage growth per year using your answer to part (a).

c) Download a measure of labor productivity, output per person (PRS85006163), using the annual frequency setting and “percent change from a year ago” units, and calculate the average growth rate of labor productivity per year since 1980. Compare your results to part (b) above and Table 3.2, and comment on the relationship between labor productivity growth and real wage growth.

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TABLE 3.2 GROWTH IN LABOR U.S. PRODUCTIVITY AND REAL WAGES Growth Rate of Labor Productivity (%) 2.9 Period 1959-1973 1973-1995 1995-2012 1.4 2.5 Growth Rate of Real Wages (%) 2.3 0.7 1.3