Very Bad Economic News
The United States Bureau of Labor Statistics reports that the median wage of American workers, adjusted for inflation, has, since 1979, gone - nowhere.
In 1979, the median weekly wage was $653. In 2010, it was $667 - an increase of a mere 2.14 percent over thirty years.
For those of us who can remember 1979, this seems impossible: the United States of today appears, on the surface, to be immeasurably richer than the United States of 1979. And it is richer; but the riches are now much less evenly distributed that they were thirty years ago. In 1979, people whose earnings put them in the top 20 percent enjoyed incomes four times that of those in the bottom 20 percent. In 2010, that disparity had grown to six times.
The lack of real growth in median incomes has long been masked by several factors. First, household incomes have increased, as more and more women have been impressed into the workforce by economic necessity. Second, workers were obliged to increase the number of hours they spent at work. Third, Americans simply borrowed more, going further and further into debt, while hoping that the increased value of their homes would eventually bail them out.
Unfortunately, when housing prices collapsed in 2007 and 2008, the music stopped. And, with high levels of unemployment, the reality of stagnant incomes became even more apparent. When two-income families burdened with debt suddenly become single-income families with underwater mortgages, economic reality becomes stark.
So the question for most Americans now is: are you better off than you were in 1979? And the answer, unless you're in the top 20 percent of households, is no.
For all our furious paddling to get ahead, for all the millions of latchkey children of two-earner families, for all the credit cards and illusions of home equity, the average American is no better off now than he was thirty years ago. Indeed, he is worse off, because in 1979 the future seemed bright; now the dark storm clouds roll in.
So perhaps it should come as no surprise that polls indicate over 70 percent of Americans favor higher taxes on the wealthy. Though they may not know or understand the statistics, they know that their lives are getting worse, while a select few enjoy the prosperity to which they once aspired, but now sense will be forever out of reach.
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Aug '10
Re: Very Bad Economic News
Our leaders have surrendered our industries foolishly and for nothing since the 1970's. Pat Buchanan (whom I don't often agree with) was spot on correct. The 'free trade' ideal doesn't work with Asian cultures who are so nationalistic and xenophobic that they happily pay more for goods they produce at home.
May '10
Re: Very Bad Economic News
Hmmm. I wonder if illegal immigration has any effect on wages?
Oct '10
Re: Very Bad Economic News
There is the Tyler Cowen argument, that it's the result of a natural slowing in innovation.
There is also the argument that there is a problem of mismeasurement. For example, there may be a problem with CPI measurement, overstating CPI and understating the growth in income and wealth.
So the question for most Americans now is: are you better off than you were in 1979? And the answer, unless you're in the top 20 percent of households, is no.
I think that is wrong. You need to look at panel data. In other words, follow the median household 30 years ago and see where the children of that same household are now. For example, look at this study. This study shows that the children have 27% higher median income that their parents. Plus, the lower the income of the parents, the more the next generation had to gain.
And finally, median income is just a tricky measurement. As economist Russ Roberts points out, if your family has dinner with an NBA team, and you measure median height before and after, the median income changes, but your family doesn't get shorter.
Edited on Jun 20, 2011 at 6:47amOct '10
Re: Very Bad Economic News
Overall, I would much rather be a median income household now than 30 years ago.
Oct '10
Re: Very Bad Economic News
There is very little evidence of that. If anything, immigration has a positive impact over time on wages. It allows us to specialize in what we are better at, and increase marginal our productivity of labor, and that is ultimately what causes wages to increase.
But, immigration, along with rising divorce rates, both which increase the number of households, can impact the median income calculation.
Edited on Jun 20, 2011 at 6:46amSep '10
Re: Very Bad Economic News
You saw what 1979 was like and your instincts are correct. This data is not an adequate description of the living standards of American workers. I would offer a few examples which have skewed this data.
1) Wage data excludes benefit payments such as insurance, retirement, etc. Total compensation includes these benefits. By restricting the data to wages the median is moved to the left because more and more compensation goes toward benefits, especially healthcare.
2) Part time workers - part time workers as a percentage of the workforce have been growing for a long time. When these folks are folded in, it moves the median to the left because there are more workers in the denominator but less hours worked per worker in the numerator.
3) Inflation adjustment - it has long been known that the CPI misrepresents the inflation rate on the high side. Changing this is one of the pillars of entitlement reform. A 1% high error would reduce avg. income by $9,000 over 25 years.
4) Measured by consumption incomes are up 74%. This is what we really mean by standard of living since the time of Adam Smith.
Out of sapce
Apr '11
Re: Very Bad Economic News
"...the average American is no better off now than he was thirty years ago. Indeed, he is worse off, because in 1979 the future seemed bright..."
Oh really? I was only 11 at the time but I don't remember my dad viewing all that many bright horizons in 1979. Inflation was over 11% and the old man has told me that a mortgage rate of 16% was considered good. The top tax rate was 70%. Not only were there no cell phones but the existing phones didn't even have buttons. There were no pc's and while I miss the sound and feel of an IBM Selectric, I couldn't play Call of Duty on it. Our tv wasn't HD, it only had about 10 channels, rabbit ears, and my parents used me as the remote control. Depositing and withdrawing money from your bank account actually required a trip to the bank. And it may be my imagination but new American houses seem larger and of better quality than those from 1979.
Edited on Jun 20, 2011 at 7:27amIf we, on average, aren't making more money, at least we're getting more bang for our buck.
Feb '11
Re: Very Bad Economic News
"So the question for most Americans now is: are you better off than you were in 1979? And the answer, unless you're in the top 20 percent of households, is no."
Are the wage data for individuals or households? If for households, I would refer you to Thomas Sowell.
Jul '10
Re: Very Bad Economic News
Hang On: "So the question for most Americans now is: are you better off than you were in 1979? And the answer, unless you're in the top 20 percent of households, is no."
Are the wage data for individuals or households? If for households, I would refer you to Thomas Sowell. · Jun 20 at 8:05am
It's for individuals.
Oct '10
Re: Very Bad Economic News
the average American is no better off now than he was thirty years ago.
I really think the fallacy here is that the "average American" now and 30 years ago is not the same person/household. You've got to observe the panel data.
Jul '10
Re: Very Bad Economic News
Todd: the average American is no better off now than he was thirty years ago.
I really think the fallacy here is that the "average American" now and 30 years ago is not the same person/household. You've got to observe the panel data. · Jun 20 at 8:59am
Well, to clarify, I would say that the "average American" is an abstract. As individuals, many people, of course, have seen their circumstances improve as they climbed the career ladder.
But the median wage has stagnated. The fact that the people who struggle to make ends meet at that wage are not the same people who earned median wage 30 years ago isn't salient to them.
Oct '10
Re: Very Bad Economic News
Kenneth
But the median wage has stagnated. The fact that the people who struggle to make ends meet at that wage are not the same people who earned median wage 30 years ago isn't salient to them. · Jun 20 at 9:19am
It is salient if the median wage earner today was at the 25th percentile 30 years ago.
Sep '10
Re: Very Bad Economic News
My wife works 3 days a week even though we have small children, because she enjoys her work and the benefits far out weigh the costs. Our lives are vastly better today than were my fathers in '79 even though it would not surprise me if our joint incomes adjusted for inflation were the same or slightly less than my fathers were then. I don't think a single statistic like that can capture such a complex thing.
Feb '11
Re: Very Bad Economic News
An ever-increasing % of the national income is being absorbed by people /activities which are not economically productive. Consider lawyers, for example--while our society definitely requires some number of lawyers, there is an optimum number, and we are surely way beyond it. Or think about the vast numbers of "administrators" in universities as well as the K-12 schools. And on and on. Many of these people ate paid way past the median, and benefit directly from the expansion of government. Although their taxes may go up, their incomes and career prospects go up even more.
Jul '10
Re: Very Bad Economic News
River, I agree. But I find it intriguing that when, in previous posts, I've questioned whether our free trade policies are anachronistic, the response by Members has been almost unanimous in rejecting any suggestion that we need to find a new paradigm that protects American workers.
Ricochet members are extraordinarily well-educated in economics. But economics must not be viewed as a static discipline. The world of Adam Smith and David Ricardo is not the world of today. Is it not conceivable that economic theories developed during an age when trade consisted of sailing ships hauling commodities and manufactures needs to be re-thought for today's realities?
Jan '11
Re: Very Bad Economic News
This is John Edwards’s “Two Americas.” It is Bartlett and Steele’s “America: What Went Wrong.”
The income disparity between the top and the bottom has grown in 31 years for 2 reasons: globalization, which magnified the rewards that accrued to success; and the centralization of state power, which allowed some to lock in those rewards using the force of government.
Globalization changed the scope for American business. While the penalty for failure and incompetence didn’t (and never will) change, the reward for success and competence grew as the size of the playing field grew. The disparity between success and failure increased as the world displaced the nation as the marketplace for American energies.
About the centralization of state power, that should be rolled back. And unlike globalization, it can be by political action.
Perhaps the author should put more faith in a political leader who is totally not of the power-encrusted Beltway, whose values are anchored in middle-class striving and God-centered belief, and who is from a state about as far from Washington DC as you can get and not be on an island.
She’s there if you want her.
Jul '10
Re: Very Bad Economic News
Todd
Kenneth
It is salient if the median wage earner today was at the 25th percentile 30 years ago. · Jun 20 at 9:25am
I understand your point and it is valid. But let's examine another point of my post: the increasing gap in income distribution. This chart shows the historic distribution of income.
If you look at the 40th percentile, average income increased by only about 10 percent from 1980 to 2007. For the 95th percentile, the increase has been about 54%.
I'm not saying that there's anything evil about the rich getting richer. But I am saying that, politically, the increasing disparity invites mischief among the class warriors.
Edited on Jun 20, 2011 at 10:08amJul '10
Re: Very Bad Economic News
Freesmith:
Perhaps the author should put more faith in a political leader who is totally not of the power-encrusted Beltway, whose values are anchored in middle-class striving and God-centered belief, and who is from a state about as far from Washington DC as you can get and not be on an island.
She’s there if you want her. · Jun 20 at 9:40am
You're referring, I presume, to the person who took a $1.2 million tax subsidy for agreeing to film a series about Alaska in, um, Alaska, instead of, say, Oklahoma?
Oct '10
Re: Very Bad Economic News
Kenneth
River, I agree. But I find it intriguing that when, in previous posts, I've questioned whether our free trade policies are anachronistic, the response by Members has been almost unanimous in rejecting any suggestion that we need to find a new paradigm that protects American workers.
Ricochet members are extraordinarily well-educated in economics. But economics must not be viewed as a static discipline. The world of Adam Smith and David Ricardo is not the world of today. Is it not conceivable that economic theories developed during an age when trade consisted of sailing ships hauling commodities and manufactures needs to be re-thought for today's realities? · Jun 20 at 9:35am
I guess I don't understand the alternative. Taxing your own people, which is what a trade barrier actually is, does not make a country more prosperous. That is mercantalism. It is going backwards.
And if I want to buy a TV from some company in China, frankly, it's none of your business. Please keep your gang of thugs from DC away from me.
Edited on Jun 20, 2011 at 9:55amAug '10
Re: Very Bad Economic News
Kenneth, two of your points explain each other: the "pyramid disparity" of income distribution and the rapidly increasing levels of debt.
In a society with low credit availability, you would expect to see all levels of income rise roughly at the same proportion (unless the rich had a monopoly on natural resources or the means of production). In a society where credit is readily available, you generally see an increase in entrepreneurship that skews educated persons' income higher.
But if the entire society starts using debt to augment their incomes, you would necessarily see the rich get richer faster. It's a property of financial leverage that the more base money you have to leverage, the more opportunities you'll have available. And when the boom/bust cycle downturns every few years, and households are forced to deleverage, the rich have a cushion to prevent income loss.
(The chosen starting year 1979 is significant when analyzing the American case. The first chart on Steve Keen's Deleveraging With A Twist post shows private debt started soaring at that time.)
As long as we have a debt-fueled boom/bust economy, income disparity is bound to get worse over time.