Have median wages stagnated?

This is a very common charge.  It is true that median wage growth has been slower than usual over the last thirty years.  But it’s not quite the grim picture it is often made out to be. 

For instance: "Including estimated benefits adds 6 percentage points to the growth rate of
average hourly earnings and 8 percentage points to the growth rate of the median hourly wage."  For the last thirty years, twenty-eight percent growth in median wages is the best available estimate.  Don’t let anyone tell you it is zero or negative.

Here is the one good summary article on this topic.  Thanks to a loyal MR reader for the pointer.

Comments

I dunno, I think that this news just reformulates the charge. Instead of complaining that the median wage has stagnated, people can complain about the rising cost of healthcare and other benefits eating away at the increased income and leaves them no better off than before. I don't know if that's the case, but I could see the argument being made.

Isaac Crawford
Blogging in Yemen
www.isaharr.com

Adding the benefits means that total compensation may not have stagnated, but wages have. Crawford's got a valid complaint.

Isaac's point is only correct if rising health care costs aren't buying us better health care outcomes. If they are, then we're just choosing to spend our compensation increases on longer lives.

Fitzgerald's calculation of the benefits effect assumes that the increase is evenly (in fact proportionately) spread but there may be distribution effects there too even beyond the ones Isaac describes. If these benefits include health insurance say those figures may be significantly biased.

It is also the case that these figures are remarkably sensitive to the inflation figure used. There is no definitive answer to even in principle bu it is awfully bold to assume that the correct correction restores growth.

Taking a cue from your post on expressing age in terms of years remaining, I'd like to know the median age where wages peak. Then I'd like to know the trends of how many are past peak vs. pre-peak. If that age is somewhere at 50 years or above, then there is a big baby boom effect pushing that median wage figure that is getting kicked around so much.

Jack is on to something. Health care costs are a much higher percentage of the lower-paid employees' wages, since they are not a direct function of income. These costs vary by age and family size. Consequently, the share of total compensation that goes to benefits (and which is ignored when looking only at wages), would boost the total comp of lower-paid workers even more than the average.

Some of the most interesting data on well being comes from the family income data.
http://www.census.gov/hhes/www/income/histinc/f12ar.html

It shows that from 1975 to 2005 median real family income rose 28%-- almost a 1% average. For families with one earner the cumulative average real increase was 3.3% -- about 0.1% annually. But for families with two earners the increase was 41.5% or about 1.4% annually. this is in line with other data that shows real income for males has been flat while it has risen nicely for female as the gap between male and female wages narrowed.

The other very interesting point in the data that goes to my point about inequality on compensation while median real family income rose 28%, mean real family income rose 47%.

The liberal-leaning Economic Policy Institute says median total compensation has stagnated from 2003-2007 (see Table 2): http://www.epi.org/content.cfm/bp195

This is actually a nice demonstration of these figures are sliced. Why '03-'07? Because it is the largest recent interval that they can get a stagnant number over. The same table shows a 5.1% growth from '00-'07. If you look at Figure C, you can also see that the '03-'07 period corresponds to weak productivity growth (about x3 slower) compared to '00-'03.

sourcreamus: "Does immigration affect these numbers downward? Is it a big enough effect to counteract partially the increased inequality? "

I think the answer is "Yes" and "Partially yes". Certainly immigrants are working at many low wage jobs. So looking at just the paid workforce over the past four decades will show a large increase in low-wage, service oriented jobs filled by immigrants. But that's not the whole story.

Why did the number of low-wage service jobs increase so much the past 40 years? It's not because manufacturing jobs have been eliminated and blue-collar workers were forced to do something else. Rather, the work formerly performed by housewives has moved from the unpaid sector into the paid workforce.

For a couple of decades, women tried to do both - have careers and continue the housewife chores. As female incomes rose, however, tasks such as child-raising, housekeeping, food preparation, and clothing repair was handed over to low wage workers. The U.S. didn't have enough low-skilled workers to meet the growing demand, so immigrants were offered the jobs in huge numbers.

The answer is that the liberation of U.S. housewives increased the demand for immigrants to perform newly created, low-wage service jobs. Those newly created jobs reduced the median wages only bnecause housewife tasks were formerly not part of the paid workforce.

It is *not* true that benefits are more likely to go to low-wage workers. Hamermesh 1999 and Brooks Pierce 2001, among others, have papers looking at the distribution of benefits, and find that benefit inequality has widened faster than wage inequality. I didn't read the Minn Fed article close enough to see if the author just assumed benefits were constant, as an earlier commenter claimed, but if so, this will bias compensation growth upward in the bottom half of the income distribution, and thus understate compensation growth.

Two other notes:
Even with compensation, it's unquestionable that a huge percentage of males are strictly poorer, in real terms, than in 1975; nearly all of the growth since 75 has been in female wages.

Second, even taking the article's numbers as given, 28% growth in median wages over 30 years of fantastic GDP growth should be a national embarrassment; median wage growth has been quite a bit stronger among other developed countries during this period. I'm no raving liberal, but I don't see how well under 1% annual median wage growth (since the 28% is compounded)is anything to write home about.

cure: "28% growth in median wages over 30 years of fantastic GDP growth should be a national embarrassment"

I don't see why. The U.S. enjoyed enormous advantage over Japan and Europe for 20 years after World War II. While the manufacturing capacity of the former was massively increased through war, that of the latter was bombed into rubble. As other developing nations caught up with the U.S., their more modern and more efficient factories eliminated those advantages.

At the same time, as I pointed out above, moving non-paid housewife tasks into the paid work force was bound to reduce "measured" wage wages. It's very simple: wages of 30 years ago weren't properly calculated because the zero wage of the housewife was ignored.

How much of this is CPI bias?

Whatever CPI bias there is would affect most of the relevant comparators as well, such as productivity growth and real GDP growth.

John Dewey (and others)

I don't understand. A women gets a paying job and so now gets compensated. The family loses her services for the time she is at work. The family's income goes up. This is supposed to be a triumph of capitalism? It sounds like a wash for the family (of course for many women it is a net loss because somehow they maintain the same duties....).

As to your question about the term stagnating, I was referring to the fact that the median men's wage has been more or less flat for a long time. Perhaps that is not the proper term. It works for me. And no, it doesn't imply that the wages for every occupation have decreased. What it means is that half of all men made less than X way back in the past and that today half of all men still make less than X. It is a sobering rejoinder to the "rising tide lifts all boats crowd" except that of course they reply
"well, it lifted some of the old boats but all these new boats came in and messed everything up"

Well, I'm not sure that either RobbL or Spencer do understand my point.

In the 60's and even into the 70's a large percentage of women were doing work in the home. They were being paid zero dollars for child-raising, food preparation, clothing repair, housecleaning, and other domestic work. A true measure of median wages would have included their zero wages for the millions of such women. Thus the true median wage in the 60's and 70's would have been much lower.

Today, far fewer women (in percentage trerms) perform those domestic chores. The work they formerly performed has been moved into the paid workforce. So the tasks of child-raising (nursery schools) and food preparation (McDonald's and Strouffer's prepared meals) and housecleaning (Merry maids) arte being performed by low wage workers. The calculated median wage is much closer to ther true median wage.

Is this really difficult to understand?

Spencer, I'm afraid I do not understand what you mean by "It probably belongs in comsumption more than income." I'm not talking about assigning a value to the work of housewives. I talking about including their zero wage as another datapoint in calculating median wage. I know it probably will not be done, though I think it is worthy of an economic analysis.

RobbL, from an economic standpoint, the specialization of labor brought about by mass production of domestic chores is positive. Talented women who were underutilized as housewives are now helping drive our productivity higher. But whether it is "good" to have children raised outside the home is a question I cannot answer. IMO, that is a question each family has to answer for themselves.

RobbL: ""well, it lifted some of the old boats but all these new boats came in and messed everything up"

Some people believe that the wave of low-skilled immigrants "messed everything up". But not me. I'm perfectly happy that lawn care is cheap enough that i don't have to do it my self. I'm sure that many former housewives are happy that inexpensive labor is available to prepare food - either at restaurants or in packaged food factories. I'm pretty sure the immigrant workers are much happier earning $10 an hour here instead of $10 a day back in Mexico. Certainly this economy has lifted their boat.

If anything is messed up, it is the social welfare system that allows so many free riders and that allows talented but lazy workers to be underutilized. Yeah, there are probably millions of workers who could work more but do not have to.

To be precise in my previous post, it should be total compensation per hour, not wages per hour.

the reported mean and median were radically understated

should read

the reported mean and median were radically overstated

I seem to always manage a major typo of this sort. If only I habitually used the preview button....

"A significant part of the difference is the Bill Gates effect. Wages are usually reported as average hourly earnings that do not include the income of the CEO while compensation does include this." Spencer

"Averages can lie, obviously. Let's get better data and really figure out what's going on." Roland

This is why we use medians.

Charles, I agree that the minimum wage needs to stay low. If it doesn't, jobs are going to be offshored, replaced by automation, or just simply cease to exist. Thomas Sowell and other economists have long pointed out that minimum wage hikes just elimninate opportunities for young and inexperienced low-skilled workers.

I would like to see the skills and productivity of all workers increase. That way, they could be paid more. But if the skills and productivity of some workers do not increase, we're just fooling ourselves trying to raise their wages. Paying workers more money for the same output doesn't make sense, does it? That certainly wouldn't be smart if the productivity of similar Asian workers is growing.

We could cite statistics that show productivity for the total workforce has increased. But that doesn't tell us which workers have increased productivity. Furthermore, productivity increases may not be the result of increased worker skills at all.

I think you are correct also that those who do not possess college degrees can better themselves.

John Dewey,

Of course, we can raise the minimum wage. As Michael Dukasis pointed out, we can combine higher minimum wages with fewer illegal immigrants less legal immigration. Our host didn't like the idea but admitted that the economic logic was correct.

Your reference to Thomas Sowell is funny. He strongly favors immigration enforcement to raise the wages of American workers.

mik,

No, sir. Not winners all around. Crops rot in the field. Costs at food processing plants increase sharply. Thousands of jobs move to Mexico and other low wage nations. Lawn care services go out of business. Fast food restaurant costs increase. Net result: lowered standard of living for everyone in the U.S.

Over the long run, population of U.S. declines, forcing greater than necessary cuts to social security and medicare.

What part of "The U.S. didn't have enough low-skilled workers to meet the growing demand" do you not understand?

Peter Schaeffer: "Your reference to Thomas Sowell is funny. He strongly favors immigration enforcement to raise the wages of American workers. "

He does not favor increasing the minimum wage, which is exactly the claim that I made about Professor Sowell.

Sowell say that the opposition of most economists to minimum wage laws:

"is not opposition based on philosophy or political leanings, but on economic analysis and on the mounting factual evidence that the law increases unemployment among the very people intended to be benefited.

Minimum wage escalation

Professor Sowell reminds us that:

"The first federal minimum wage law, the Davis-Bacon Act of 1931, was passed in part explicitly to prevent black construction workers from "taking jobs" from white construction workers by working for lower wages. "

What Causes Unemployment?

Sowell explains exactly who is harmed by minimum wage laws:

"Young, inexperienced and unskilled workers are especially likely to find it harder to get a job when wage rates have been set higher than the value of their productivity. "

A glimmer of hope

If you are claiming that Professor Sowell and I have different views on immigration, you are correct. But we see eye to eye on minimum wage laws, not matter how funny that seems to you, Mr. Schaeffer.

Picking the year 1972 is just manipulative. Should have used 1792.

All this talk about the state of median wages completely ignores the composition of the workers above and below the median point now, and in 1975, and it ignores the jobs that are being performed by these workers in the differing time periods. Only John Dewey seems to understand this. There have been two enormous demographic/employment changes in the US- women comprise much more of the work force at all levels, and the country has added anywhere from 30-60 million poor, illegal immigrants and their children, possibly more. No study of wages that doesn't account for these facts is worth the paper it is printed on. Come on economists, do a thorough study for once.

And, I would note, the key to welfare is consumption of the median. If you bothered to read the link Tyler provided, the author of the study promised two further papers discussing some of these issues.

And one last note- if you have lived in this country for the last 40 years, you can hardly claim that people are worse off, on balance. The claim is false on its face.

Yancey Ward,

"And one last note- if you have lived in this country for the last 40 years, you can hardly claim that people are worse off, on balance. The claim is false on its face."

Not exactly. Back to the real world. See below.

"Thus the phenomenon of young men living with their parents, unable to marry because they can't afford to live on their own because of the high costs of housing, but they have a really fancy big screen TV."

Peter,

BS. A young adult who lives with his parents is doing so because he doesn't want the expense of paying rent, no other reason. Rent is not expensive in most areas. There may be cultural changes involved as well, but don't tell me that people live at home because they can't afford not to.

Petyer Schaeffer: "The key to independence on the part of young people is "affordable family formation". The idea isn't new or mine. Check out the work of Stave Sailer on this subject."

I have no doubt. Certainly the idea of bashing U.S. prospects for the future must be as old as the U.S. The idea of blaming immigrants for the misfortunes of the working man must go back decades if not a century or more. Just as those ideas wdere proven to be wrong all the other times, they will be proven wrong again. I'm sure that won't stop the Schaeffer's and the Dobbs's and the Tancredo's from preaching pessimism and fear until their last breath.

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