It’s only one data point, but…

by on April 6, 2007 at 4:32 pm in Economics | Permalink

Employers are not only hiring more, but they are paying more, too.  The
average hourly earnings for workers rose 4 percent in March compared
with those a year earlier, to $17.22 an hour.  The gains in weekly
earnings were even stronger, up 4.4 percent, to $583.67.

Here is the story.  I believe that the much-heralded "real wage stagnation" consists of three major factors: a) potential real wage increases being absorbed by rising health care premiums in the broader employment package, b) unmeasured improvements in the quality of economic life, the internet being one example, and c) an unusually long lag between rising productivity and real wage gains.  I am increasingly of the belief that the third factor no longer operates.

1 Martin April 6, 2007 at 6:09 pm

per item b, BLS calls that hedonics when it is (mis)calculating CPI.

2 Chris Meisenzahl April 6, 2007 at 7:54 pm

I don’t get it, why would they pay any more than the minimum wage? 😉

3 evden eve nakliyat April 7, 2007 at 4:36 am

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4 Tyler Cowen April 7, 2007 at 6:14 am

Offshoring is very small in significance, at least so far. I’ve blogged plenty on the real wage effects of immigration in the past. Even if you buy into the anti-immigration story, it would only explain wage stagnation at the bottom of the distribution, not for the median. I don’t *dismiss* those factors, but I believe my list of three is the best current list we have.

5 Mr. Noah April 7, 2007 at 11:17 am

How do unmeasured improvements in the quality of life explain real wage stagnation? Sure, if we measured those improvements, we might conclude that wage earners were getting more bang for their buck, but this certainly didn’t factor into either A) workers’ wage demands, or B) companies’ wage decisions. So the riddle of real wage stagnation must be due to the other two factors…

6 happyjuggler0 April 7, 2007 at 2:41 pm

Mr. Noah,

I believe the issue is unmeasured quality gains in products in the CPI, thus overstating inflation, thus understating “real” income and “real” GDP after nominal gains are adjusted for headline inflation.

If in 1980 I made a doctor visit and he examined me and said take two aspirin and call me in the morning, while his 2007 counterpart, thanks to radical improvements in the quantity and quality of medicine available, could not only tell me what is wrong, but prescribe medication or helpful curative advice that actually works, and the 2007 package cost me radically more than the 1980 doc’s advice/prescription package, is this due to: A) inflation B) measured quality gains C) unmeasured quality gains D) a lucky guess on my 2007 doctor’s part, or E) all of the above?

From roughly 1929 to the 70’s the big gains in standard of living (in the US and other developed countries) were quantitative gains, while qualitative gains dominate since then, increasingly so. There are only so many washers and dryers a household needs for example, while it is absurd to think the government can accurately tell how much more “objective value” a 2007 internet connected PC has vs its 1997 counterpart.

In other words, as services become more and more a part of our GDP than manufactured goods, and as the line blurs between them (is PC connected to a cable modem a product or service? How about a heart valve replacement? How about a car on warranty?), quality becomes more important in GDP than quantity, and it is radically undermeasured. This is an ongoing and seemingly accelerating process, more and more making a mockery of government GDP and income numbers, even though we credulously accept those numbers for lack of something better.

7 save_the_rustbelt April 7, 2007 at 3:33 pm

Further proof that sitting in a faculty office reading statistics does not allow one a good picture of the real world.

For many Americans pensions are deteriorating or evaporating, health coverage is deteriorating, job security is deteriorating, basic family commodities are inflating (milk and gasoline), etc. and these new jobs are low value jobs in big box stores. Immigrants (mostly illegals) take a large percentage of new construction jobs (estimate from 30% – 60%).

But on average, things are swell.

Even the Decider-in-Chief recognizes the growth in income eqaulity (or at least Karl Rove told him so).

8 happyjuggler0 April 7, 2007 at 5:55 pm


I agree that antibiotics was a huge plus. I believe that one of the big increases in lifespan though was much improved sanitation and other public health measures, most of which occurred before WWII actually.

One final note, it is a huge mistake to think that health spending is about lifespan nowadays, there really isn’t much of a correlation. The big value added in additional health spending, when there is indeed value added, is quality of life issues.

As a long time allergy sufferer I can tell you that there have been huge improvements over the past 25-30 years. Similarly you can actually take effective cold medicine now that doesn’t knock you out.

Ulcers were formerly treated with the equivalent of stone age medicine, now we can both effectively treat the painful symptoms and also eliminate the root cause.

A huge amount of surgery today is done with “scopes”, short for various -scopy procedures that simply didn’t exist before the 80’s. With scopes they can make a tiny incision instead of a major gaping cut in you, and you can become an outpatient the same day of surgery. Previously you had lots of inpatient post-op care. Scopes also make possible surgeries that previously were simply undoable. This is possible due to the small size of the surgical instruments.

Need I mention Viagra? Wheelchair technology? Prosthetics?

There has simply been a huge virtually unremarked upon medical revolution since circa 1980, and this has been in medical devices, surgical ability, drugs, and general all around greater medical knowledge which allows previously untreatable non-lifethreatening ailments to be treated and allows people to live normal lives, and to live healthy active lives foremerly associated with only the young, that previously would’ve left them with limited mobility.

Personally I think we’re just getting started as well. The point though is that this progress is accelerated compared to the previous ~30 year period, and it may continue for another 30 years or so.

All of this costs money of course, and is why all developed countries (not just the US) have had increasing costs in nominal currency terms for total healthcare. If one only uses the notion that lifesaving (whatever that means, we all die eventually) spending is the proper metric then one is missing most of the picture. However health quality doesn’t lend itself to easy graphs or numbers the way life expectancy does, so “we” tend to use the same old inadequate metric.

9 kevin April 7, 2007 at 8:19 pm

Hey Randall: get your robots to kill the immigrants. problem solved.

10 spencer April 8, 2007 at 8:35 am

happyjuggler0 — just last week I had a Dr. tell me to take two aspirins and call a specialists — some improvement from your 1980 experience.

11 woshiwo December 3, 2007 at 1:31 am
12 Tibia coins December 31, 2008 at 2:02 am

Please come to tibia gp, we will give you a great surprise.

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