Thursday, June 02, 2005

Compensation and the Trade Deficit

Let me dispute Kash's assertion that compensation has moved in the same direction as the trade deficit. That hasn’t been true since 1998 according to the National Compensation Survey’s Employment Cost Index deflated by the CPI. The deflated ECI has exhibited anemic growth between Q4 2003 and Q4 2004 (and receding to no growth in Q1 2005 for that matter). Between Q4 2003 and Q4 2004 the trade deficit widened from 528 to 621 billion. Between Q4 2002 and Q4 2003 the deflated ECI grew 1.9 percent and the trade deficit grew from 515 to 528 billion. Between Q4 2001 and Q4 2002 the deflated ECI grew 1.0 percent and the deficit grew from 425 billion to 515 billion. Between Q4 2000 and Q4 2001 the deflated ECI grew 2.5 percent and the trade deficit grew from 397 to 425 billion. Before that, the deficit had been growing at about 100 billion a year since the Asian financial crisis in Q3-4 1997 through the internet boom, the ECI grew about 1.7 percent each year in ’97 and ’98, but slowed to .7 percent growth each year in ’99 and 2000.


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