Russ Roberts has the scoop.
Are real wages falling?
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Yes, the NYT article clearly tries to paint the darkest picture it can; partly because that’s how one sells newspapers in general, and partly because that’s how one sells newspapers to liberal New Yorkers in particular. But Russell Robert’s “refutation” is in equally bad faith.
1. Robert’s claim that “there are no government series … on median earnings” is simply false. Try this, Russell.
2. “Why would you use a measure of compensation that ignores benefits?” Russell asks. Gee, might it be that cash earnings can actually be transformed into what a worker wants, while in-kind benefits cannot? Yes, total compensation is important, but so is cash compensation. Or would it be fine with Roberts if we paid him entirely in medical insurance benefits?
3. Roberts wonders why the paper choose 2003 as a starting point instead of November 2001. He is probably right that the NYT picked the time-frame it did to get bad-looking numbers. But November 2001 is pretty much 2002, so this is only really a one-year quibble. And really, any three years of solid GDP growth in which real wages fall is a phenomenon worthly of note.
Basically, Russell can’t point to anything actually factually incorrect in the article; he just doesn’t like its emphasis and tone. While the article could certainly have painted a more balanced and nuanced picture, it’s wrong from Roberts to feign ignorance in a blatent attempt to cop the pose that “there’s nothing to see here”. There is something real and troubling and worthy of our attention that this NYT article tries to highlight.
Look at this in the the Wall Street Journal. They are using the same numbers with a more positive spin. Did he complain about this also?
http://online.wsj.com/public/article/SB114341649383308604-n4_olq41qXEvqTb_wgFhndoEDow_20070327.html?mod=blogs
OK this post is bullshit. The NY Times article was factual and relevant, and you linked to a criticism of it that was full of it.
You, Russ Roberts, and George Bush can not figure out why working class America is pissed off. The rest of us know.
Garbage like this is how you get deleted from RSS bookmarks. Good bye.
For what its worth (and this series doesn’t extend beyond 2004 at the time, and it also ignores benefits), both the median and average real household income has declined every year from 2000 to 2004. Real per capita income has done the same. Unless one assumes that benefits ar growing by quite a bit, that can’t possibly be a sign that the economy is going great guns for most people.
(data at: http://www.census.gov/hhes/www/income/histinc/h06ar.html and http://www.census.gov/hhes/www/income/histinc/p01ar.html)
“Libertarians who posit that people make the best financial judgments for themselves don’t trust those same people to make accurate statments about their financial situation and how its changed.”
No one was making a statement about themselves. The hacks at the NYT were making statements for all of us (which were false for many of us). Try justifying your nonsense next time.
Mickslam, The question is where gains from productivity growth are going. A bunch of it goes into benefits. And benefits are part of the worker’s share of the surplus from exchange. An article that talks about how productivity gains are apportioned, and de-emphasizes to the point of invisibility non-cash compensation, is just misleading.
If you would like a larger portion of your total compensation to be in cash, then you should negotiate a contract that pays less in benefits, and more in cash. If you find that it is difficulty or impossible to negotiate such a contract, then that’s going to be a big part of the policy problem. Detaching health benefits from employers would help a great deal. Your employer pays you cash, you spend as much as you like on a health plan. Union members often end up with labor contracts larded with non-cash compensation, and find that it is illegal to negotiate on their own. That’s a problem.
I agree with Will Wilkinson.
I’d just add that if cash wages were seen to be rising while real non-cash benefits such as health insurance were falling, then the NY Times and the rest of the economic Left would undoubtedly be all over it and saying things along the lines of “while cash compensation may be rising, it is unimportant if you can buy more cd’s and eat at more expensive restaurants but are unable to have basic medical care”.
Not using total compensation reeks of disingenuousness. The NY Times ought to be ashamed of itself.
Robert’s claim that “there are no government series … on median earnings” is simply false. Try this, Russell.
David, you’re being unfair here. Let’s reprint the relevant section from Roberts’ post:
Let me repeat the key sentence:
The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation.
That’s a very strange sentence for many reasons:
1. Why would you use a measure of compensation that ignores benefits, an increasingly important form of compensation?
2. Why would you use 2003 as your starting point when the recession ended in November of 2001?
3. There are no government series that I know of on median earnings. Where did those data come from?
The Times article referred specifically to hourly earnings, and Roberts said he was unaware of any series on median earnings. I supposed you could interpret this as saying he wasn’t aware of any series at all, rather than an hourly series, but considering he directly quotes a passage on hourly earnings, this is, to put it mildly, extremely unlikely.
–happyjuggler0
“To make a long story short, if we have had scads more low skill/ low wage immigrants than we used to in 1973 (and we do), then where born-in-the-USA Americans had stagnant wages it would look like a large fall in median wages and also mean wages, along with an increase in inequality skewed towards the rich.”
I agree with your anylisis, but not with your conclusions. The baby boomers and women entered the work force in large numbers staring in the late 60′s which produced the same effect that immigrants do today. When, in the late 80,s the drop in new entrants as the baby bust of the 1970′ entered the work force, the different was made up by immigrants. The demographics of household size and percent of married couples also effect the statistics. However it is also true that the compensation at the very top has grown at atonishing rates that cannot be explained away.
I don’t buy Roberts’ claim that there’s nothing there because the difference can be explained by benefits. For one thing, another statistic is that the percentage of workers with health insurance is dropping, and everybody knows what’s happening with pensions.
So workers may not be getting _more_ benefits, but rather _more expensive_ benefits. Wouldn’t this essentially mean that their real income is staying the same, at least in terms of benefits? That, combined with the lower median wage data, sounds pretty bad.
Of course this is only anecdotal, but how could anyone possibly believe real wages are declining when DuPont says this in a WSJ journal article describing their decision to terminate the company’s DB pension …
“Mr. Porter said the beefed-up 401(k) plan won’t fully replace the company pension benefits, but added that if employees get unusually good investment returns in their 401(k) accounts, they could be better off than under the company plan”
Surely one of the funniest comments in quite some time.
Ssezi,
At least we seem to agree that employer funded health care is a bad idea. Since cost the total compensation of employees is rising, and since people like you seem to not like your end product from that compensation, this is a pretty good example of individuals knowing better what is good for them than someone with a top down perspective.
By the way, the reason that employers offer health insurance is an historical accident due to the government having a wage freeze during WWII. So companies offered their employees “free” health insurance instead, and after some grumbling the government allowed that to happen, tax deductible to the corporations to boot. We now have generations of Americans who seem to think that corporations “ought” to provide health insurance to their employees, and since it makes more sense from a tax perspective thanks to the way the government structured tax policy, the corporations for the most part have gone along with this. The ones that don’t wind up looking cheap and have a harder time getting key employees as a result.
ssezi and joan,
First of all I am not making claims that the top 1% or top 20% or whatever aren’t doing better. I think that is pretty much an established fact. The thing I am trying to do is point out that what the stats seem to be showing for the other 80% are not really what they seem to be.
My point is simply that thanks to immigration the reported mean and median averages are close to meaningless unless you tease out the immigrants incomes and only then calculate what the mean and median are for the remaining Americans. It ought to be self evident that low skill Mecian workers are making much more than they would have if they stayed in Mexico. But what about the people who were Americans before immigrants warped the stat picture?
I didn’t say the rich’s share would go up under my example, I (sarcastically) said, or at least meant, it would appear that way to the NY Times (and others) when you looked at both the mean and median. If the mean and median are the same at one point, and then ten years later the mean is higher than the median, one can conclude (wrongly) that the rich are benefitting at the expense of the poor since they are getting a higher share than the person in the middle. (9x vs 5x when it was 9x vs 6x previously).
I guess a data sample that would fit the last paragraph in my original post would be 3x 5x 7x, for a median and mean average of 5x. Then 10 years later the group being the same three with incomes of 5x 7x 9x, as well as two newcomers of 2x and 2x from Mexico when before they made 0.5x. Thus the ten years later group is 2x 2x 5x 7x 9x for a mean and median average of 5x again. However when you realize that those five individuals previously had 0.5x 0.5x 3x 5x 7x you realize they all individually made significant gains even though the mean and median are exactly the same. But you would never know it looking at government data that might show a flat median over any given time frame.
My “x”‘s example from my previous post was meant to point out what a situation in which the actual median income of Americans was flat would look like if you added a bunch of new Americans to the sample who over the time period emigrated from Mexico. Such a sideways median would look like a falling median in unadjusted statistics.
happyjuggler0–
Look at average income per tax return reported to the IRS. During the 1970′s the number of worker per tax return changed by about 10% over time because of a decrease in the fraction of joint returns was less than the increase in the fraction of working wives. Since 1980 these two effects have nearly balanced, so each tax return represents 1.3 workers. The point I was trying to make is that the failure of average (IRS)income to grow has been a problem for at least 30 years. It did not start with the immigration increase. Since 1980 the GDP/worker has grown about 1.7%. The median income has performed worse that the average over this time period because of the increased share by the richest few percent.
Note; IRS incomes include income from interest, rents etc. that is not counted in GDP and does not include benefits.
http://www.visualizingeconomics.com/wp-content/uploads/avg_income_book_big.gif
In 2005 the difference between the median income for all workers and for white workers was about 3%. It is not that I don’t believe the effect you are talking about exist, but that it is not nearly large enough to account for the slow growth in incomes over 30 years. Competition from immigrants may be driving the wages down for the bottom half, but that is a different effect.
Spencer,
don’t be so harsh, man. Alex and Tyler aren’t all bad. In fact they are mostly good – its why you (and I) bother reading and posting here.
I get pissed too when I look at some of the stuff they put up over here ( like this link for example), but its usually better than this link, plus they like wine and art and seem like guys it would be fun to sit around with them and jabber about the world.
Now compare their stuff to someone like Jane Galt. Its much more informed. It’s much more reasonable. They are unlikely to make gross factual errors, and then try to talk their way out of them, or to use verbiage to defend their point.
I do wish they would dive into the comments more frequently – I consider blogs to be a discussion, and setting a topic without participating is kinda lame.
Really, my main complaint is that this link by Tyler is below him. Linking to something like this, without comment, implies that it is at minimum largely factually correct. It clearly fails that test, as it uses misdirection combined with highly debatable points to refute an arguement. Many people, and economists, are genuinely concerned about the disconnect between compensation and wages. To use something like this as a refutation of an arguement without both clearly disclosing you are using a different metric and the fact that there is a raging debate about the entire subject is dishonest.
Noah-
Learn to read my stuff before you quote it. Why do you think the NYT wrote this article? Its pretty simple – Lots of people are unhappy with this economy, on a very personal level. The article attempts to explain why. The rebuttal tries to avoid this subject, but this one fact still stands. Lots of people think this economy sucks. All the hand waving and misdirection in the world doesn’t change this fact. Quoting statistics that say the economy theoritically doesn’t suck won’t do as much to change their opinion as a big, fat pay raise. Thats what the article does – it attempts to find reasons as to why so many people think this economy sucks. Thats the entire point of the NYT article.
Thats what you don’t understand about what I wrote. Some clown at ‘Cafe Hayek’ is trying to tell people ‘you are getting pay raises’, while they are saying clearly to him ‘no we aren’t’ and waving their paychecks infront of him while doing it. The Cafe Hayek guy doesn’t even get why the NYT wrote the article in the first place.
mickslam: “Anyone here ever left a job to go to one with less pay but better benefits? No? Anyone? ”
Yes, I did. Contract computer programmers and PRN nurses can both elect to take higher wages by foregoing health insurance. My wife and I both did that for short periods. As we aged, we realized how costly health insurance had become, and how easly we could lose coverage if not for the security of group-negotiated rules.
happyjuggler0:
Study finds that immigrants raise wages:
“Two new studies by California researchers counter negative perceptions that immigrants increase crime and job competition, showing that they are incarcerated at far lower rates than native-born citizens and actually help boost their wages.
A study released Tuesday by the Public Policy Institute of California found that immigrants who arrived in the state between 1990 and 2004 increased wages for native workers by an average 4%.”
http://www.dailykos.com/storyonly/2007/2/28/1240/92339
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