Based on inflation data released this morning, a combination of slower wage growth and faster price growth has led to falling real hourly and weekly earnings for most workers.

The Figure shows the yearly change in real earnings for the approximately 80% of the workforce that are non-managers in services or blue-collar factory workers. After handily beating inflation last year, wage growth began to slow as the economy lost speed in the last quarter of 2007. A year ago, annual hourly wage growth before inflation was 4.3%; this year—Jan07-Jan08—it was 3.7%.

Inflation, conversely, driven up by higher energy prices, is growing about twice as fast as was the case one year ago.

This combination has led to the dramatic shift in the buying power of workers’ paychecks. A year ago, real hourly and weekly earnings grew on a yearly basis by over 2%; this January, they are both down by about 1%. Note also that over the past two months, due to the decline in average weekly hours—a function of the weakening job market—real weekly earnings are falling more quickly than hourly earnings.

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As they wend their way through the Midwest, candidates Obama and Clinton are laying out a detailed and useful policy architecture for addressing one of our central economic challenges: the gap between overall growth and the living standards of working families.

Predictably, they’ve taken no end of flack from the ideological maintainers of the status quo, those backwards looking critics who label someone an “economic populist,” as if the offender’s agenda is just this side of communism.

But let’s take a clear-eyed look at their arguments. Step one is defining “economic populism” in today’s context.

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