Scott Sumner, an economist who blogs at The Money Illusion, prior to seeing Krugman's chart wrote: "Here’s a graph showing hourly real wages, where I use the wage series excluding the higher paid managers. I presume that’s the series people are discussing":
Both are based on "Average Hourly Earnings of Production and Nonsupervisory Employees." Seems like they should have the same shape with a different scale.
It took me awhile to figure why they look so different. The following chart provides the answer:
Krugman used the Consumer Price Index (the red line above) in order to "normalize" wages. The CPI is:
an index of the variation in prices paid by typical consumers for retail goods and other items.Sumner used the Personal Consumption Expenditures index (the green line above) to "normalize" wages. The PCE is:
A measure of price changes in consumer goods and services. Personal consumption expenditures consist of the actual and imputed expenditures of households; the measure includes data pertaining to durables, non-durables and services.This example shows you can paint any picture you like about just about anything just by picking which statistics (especially when it comes to price indices) you choose to use. Stagnant wages? Sure. Rising wages? No problem. Whatever you want.