Dude, Where My Real Wages?
Shrinking, that’s where they are, as you can see in this nifty chart I stole from The New York Times. Felix Salmon remarks:
The chart doesn’t mention the main reason for the fall: unusually high inflation. Since inflation is running at a 4% clip right now, you’d need wages to be rising at the same rate in nominal terms just to stay at zero on this chart. If food and energy prices stop rising at some point, real wages will start looking much healthier.
Of course by the same token, if prices started falling dramatically, then even a small pay cut would really be a pay raise. But what we have is the inflation uptick, and with it falling real wages for everyone who doesn’t get at least a 4 percent raise this year, a problem that we hope won’t be afflicting the all-important political blogging sector.
43 Responses to “Dude, Where My Real Wages?”
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February 26th, 2008 at 5:47 pm
From a macroeconomic perspective, we should be grateful that wages aren’t rising. If they were, that would indicate that “stagflation” really is a threat.
February 26th, 2008 at 6:39 pm
Dude, Where’s My Apostrophe-s?
February 26th, 2008 at 6:58 pm
Don’t forget to live blog the debate tonight, because if Hillary gives a good 30-second answer to even one question, it could change the dynamic of the entire race! Obama will lose for sure if Hillary appears to be likable for any 30-second stretch. That’s just obvious.
February 26th, 2008 at 7:01 pm
The chart doesn’t mention the main reason for the fall: unusually high inflation.
The inflation’s not so unusually large. That is, it can hardly account for the 3% drop in real earnings from August to January. Not sure, but I bet inflation has increased less than 1% during that time. It’s idiotic of Felix Salmon to think that’s the problem. If food and energy get cheaper, workers will still be down 2% in six months, a horrendous drop.
Used to be, kiddies, that employees had unions that insisted on periodic wage increases better than inflation that kept this from happening. No more. The absence of any way for workers to catch up, not inflation itself, is the problem. Not that I would expect a writer for the NY Times to be aware of this.
February 26th, 2008 at 7:17 pm
Here’s a name from the past I bet you’ll start hearing used a lot more in historical analogies soon — Paul Volcker.
They can’t keep propping up growth forever with rate cuts, with inflation ramping up like this.
February 26th, 2008 at 7:20 pm
Used to be we had 8% unemployment and 15% inflation too. Unions bring undeniable benefits to their members, and it is true that union membership has been on the downslope, but let’s not pretend that there is some golden age of economic prosperity to which we can all return.
The 60s and 70s had different troubles than we have now, not no troubles.
Up until we entered the recession, the growth in real wages was a respectable 1.5 – 2%. And this is during the 7th year of Bush.
Once we clear the recession, wage growth will most likely return to it’s comfortable upward trend. (All you Dem partisans, please remember that we will most likely have President Obama/Clinton presiding in 10 months, so you are predicting economic temds on your allies watch. Bush will be out of here.)
February 26th, 2008 at 7:22 pm
That should be “economic trends” in the penultimate sentence. Typo alert.
February 26th, 2008 at 7:29 pm
Yeah, heedless, you’re right for 1978-1982. I did buy a house with a 16% mortgage in the last of those years. But that was a weird patch (although we may be trying to duplicate it in a small way). Between 1950 and 1972 or a little longer, the bosses cried that good wages would drive up inflation and, by golly, it didn’t happen. I’m not an economist, I just grew up in those years with guys working for GM. And it wasn’t high wages that caused the great inflation of the late ’70’s, early ’80’s, since wages had begun to stagnate in the mid-70’s.. It was probably commodity prices (oil), like now. In fact, only recently did the pump price of gasoline exceed the real high it had reached in about 1982-83.
And finally, these words are a lie: “wage growth will most likely return to it’s comfortable upward trend”. There just hasn’t been any “comfortable upward trend.” That’s just not happened. Not for the lower 50% of the population, it hasn’t.
February 26th, 2008 at 7:45 pm
Re: Between 1950 and 1972 or a little longer, the bosses cried that good wages would drive up inflation and, by golly, it didn’t happen.
Inflation was very low during that period (except at the very end) so you didn’t need a 10% raise every year to keep up. Even a small raise let you get ahead. Most people still get those small raises, but with inflation it’s just chump change.
Re: There just hasn’t been any “comfortable upward trend.” That’s just not happened. Not for the lower 50% of the population, it hasn’t.
For a while in the 90s there was. And in 2005-6 there was a brief spell when wages started beating out inflation. But now (as Matt’s chart makes clear) we’re back in the dumper again.
February 26th, 2008 at 8:04 pm
heedless, actually, there have been 3 distinct post-world war ii periods, and the one that ran from 1945 – 1973 was the best of them. of course we can’t “return” to that period, but no, not all eras are the same, either.
as for real wages, you are confused: real compensation has grown, but that is an artifact of increasing costs for health-care insurance, which has had a dual affect: fewer people are covered, and they pay higher out-of-pockets.
February 26th, 2008 at 8:31 pm
That’s right. Flatscreen TV’s are a lot cheaper than they were just a year ago.
February 26th, 2008 at 8:36 pm
Howard, you keep playing the same game. Try this one: Real wages haven’t grown this year, but that’s an artifact of increasing costs for oil.
February 26th, 2008 at 9:06 pm
Wait a minute. I thought real wages have been stagnant? It looks like they are averaging a pre-recession growth of about 2%; what were they like for the last 5-20 years? That doesn’t seem like stagnation to me.
Unless they have been fluctuating as wildly as they have in the last year. But I doubt they have been. After all, the credit crunch, housing collapse, 100 dollar per barrel oil, impending recession are newer things.
February 26th, 2008 at 9:37 pm
Why would Felix Salmon think inflation is going to fall when the Fed has already shown that it cares much less about inflation than it does about rescuing a small number of very rich hedge funders? Cut the interest rate and throw the average American into the inflation inferno is the Fed policy. After all, you don’t want the stock market to go down. Meanwhile, in the NYT today, there is this:
“The Labor Department reported that wholesale prices, which exclude taxes and distribution costs, rose 1 percent in January, up from a drop of 0.3 percent. Compared with a year ago, prices were up 7.4 percent.”
Ah, but you have to exclude volatile food and energy costs. I love the idiot repetition of that phrase. Volatile does mean up and down. Energy costs have just gone uniformly up since – oh, since President Backbone stole the election in 2000. Food costs have been rising uniformally for the the last two years. Bush has to finish his masterpiece – catastrophe on every front.
February 26th, 2008 at 10:03 pm
thomas, it’s not the same situation in the slightest, so your proposal fails the first test of analogies: it’s not analogous. if the total comp line goes up but there is no real gain (in fact, there is a real loss, as fewer people are covered and out-of-pockets are higher), then just because the cpi-adjusted real dollars appear to be increasing doesn’t mean we have to be taken in.
as you have been.
mixner, let’s try to define our terms over things like time: at particular moments over the last 30 years you can say that real wages have grown and at particular moments they have not grown (most of those moments, although there have been spans). if you are talking about the bush years in general, when you adjust for the distribution of jobs, real hourlies have not grown, which is what i’m talking about.
as for the incredibly juvenile and tedious argument that health care coverage is just so incredibly better than it was 30 years ago (yes and no, at best, and who cares, because yes, amazingly enough, you can still be a poor person with indoor plumbing), from last year to this year, nothing dramatic happened.
other than the number of people covered through their employer dropped and the real costs of the employer providing that coverage went up.
no single measure tells us anything, and consumption is useful in some respects and useless in others.
February 26th, 2008 at 11:10 pm
Shorter Mixner: Real wage data is useless because it does not conform to my ideological prejudices.
February 27th, 2008 at 12:16 am
howard, your argument is with mathematics, not with me. we’ve been through this before, and you can’t get past the fact that real compensation is wages plus benefits.
February 27th, 2008 at 2:29 am
The chart shows 3, maybe 4, months of real wage decline. Is this unprecedented during a general economic expansion? (I don’t know) It’s worrisome, but call me when we get to 10 or 12 months.
February 27th, 2008 at 7:50 am
Citing the 1945 – 1960 period of economic expansion is a bit misleading. Not only had we just reduced western Europe to rubble (so there was no competition for most of our heavy industry), but standards of living were still recovering from the Great Depression. One revealing statistic: the median size of a new house in 1950 was 950 sq. feet. In 2004 it was 2350.
As for the suggestion that economic gains in the last 20 years have somehow passed the middle class by, this is utterly false. When you include benefits (health care, mostly) in calculating employees’ compensation, even the bottom quintile has seen a healthy 2% real growth. If you include government benefits, particularly the EITC, mortgage deductions, and Medicaid, real growth has been even higher.
Roger,
I believe we got into more or less the same argument in the thred following Matt’s deregulation post. (That’s by way of saying, I doubt there’s much chance either of us will convince the other, but hope springs eternal)
February 27th, 2008 at 9:56 am
Mixner, that’s your defense of the Bush administration, eh? Hmm, we have oil shooting up to a price 30 dollars more than its fair value per barrel – we have an insane foreign policy that makes threats every two or three weeks about the middle east, just to keep the markets roiled – we have an administration dominated by people who were in the oil business, who are watching their buddies make the biggest profits in history – and gee, it couldn’t be Bushie’s fault!
Nice try. Here’s another try – a loose money policy that is sloppier than any other administration’s in history, plus a rigid ideology of de-regulation which basically allowed the financial markets to ‘regulate themselves” – which is like allowing the mafia to regulate itself – and a tax policy that aggravated economic inequality (which is not a static problem – inequality begets inequality, causing the middle class to be left behind as productivity gains were seized almost entirely by the wealthiest) was the mix out of which the assault on the average American household was born. It is called the Bush economic policy. By November, I figure it will have made Bush’s popularity the equivalent of Hoover’s in 1932.
February 27th, 2008 at 12:44 pm
I dunno. Look at this chart. From Dani Rodrik’s blog. Pretty crappy to be a high-school grad since 1980, and not so great to be a college grad. The benefits of much-increased productivity are going elsewhere.
http://rodrik.typepad.com/dani_rodriks_weblog/WindowsLiveWriter/image_26.png
February 27th, 2008 at 1:27 pm
David in NY,
I dunno. Look at this chart. From Dani Rodrik’s blog.
As as indicator of standard of living, it’s meaningless. Show me a chart of changes in consumption for high school grads since 1980. The size and quality of their housing. The quality and amount and variety of food they consume. The quality and rate of ownership of cars. The number of airplane trips they take. The quality of health care they receive. The quality and variety of communications, information and entertainment services they receive. And so on. Show me data that measures how people actually live.
Of course, the rate of college education has also increased dramatically since 1980, and people with only a high school education are a much smaller share of the population today than they were in 1980. The chart also does not reflect this fact.
February 27th, 2008 at 3:45 pm
Mixner–you can’t even use all that list of stuff for comparison, either. Americans have been living for the last 10 years high on the hog by using their houses as ATM machines.
If you factor in the amount of DEBT that the average American holds as well, I think you would come to some very different conclusions. Add into that the rising prices for education and the rising amount of student debt that a lot of young ‘uns carry and you can see why they’re pretty pissed.
February 27th, 2008 at 3:52 pm
Mixner–you can’t even use all that list of stuff for comparison, either. Americans have been living for the last 10 years high on the hog by using their houses as ATM machines.
The net worth of Americans is at or close to its all-time high, despite the decline in housing values over the past couple of years. And the growing standard of living obviously predates the housing boom anyway.
February 27th, 2008 at 7:39 pm
Re: If you factor in the amount of DEBT that the average American holds as well, I think you would come to some very different conclusions.
The median credit card debt is less than $3000. 40% of all adult Americans have no revolving credit card debt at all.
March 7th, 2008 at 8:44 pm
Mixner, you have no idea what your talking about. First of all, real wages do indicate standard of living because that tells you what you are really making as opposed to what you are consuming. According to the US Bureau of Labor Statistics, our real wage in this country has declined by 11% since 1965, and that is taken using 1982 constant dollars so inflation is constant. I don’t know what your ideas are about debt, but obviously you don’t care. You don’t care where the money is coming from, who it’s going to, and how everybody has to deal with it. Our lenders have lent so much money, which isn’t even theirs, to people they had no business lending money to, and look where we are. The worst credit crunch, record national debt, record foreign debt, weakest dollar, worst housing price (most people’s subtantial investment) decline since the great depression, record foreclosures, people stuck under loans and variable rates, and all our brilliant gov. does is try to pump liquidity and lower interest rates, which at this point just devalues the dollar. Who do you think pays for all of that? What about parents who leave their kids/beneficiaries behind with huge ammounts of debt, many of them pay more in interest in a year than they ever though about giving to their kids to teach them or investing for them. What about the intangibles like the divorce rate which is linked strongly to money and has risen dramtically? How about the fact that we are also working now more than ever, even though we’ve got a 10% pay cut, yet productivity has risen all but 5 years since 1948 to more than double what it was. Maybe the of jobs we lose to countries overseas, many of which come from the mid to upper middle class, will get you going. The vast majority of Americans say they have less time for their families, sleep, and themselves. Don’t let me forget the documented explosion in child care costs as well as the number of kids who get left home alone or with thier siblings that are often too young to properly handle many situations. Also, over the years there has been a large rise in stress related illness which is substantially linked the increase in the ammount Americans work. All this for a paycut and a longer work week, and higher prices.
Also, you site technological advancements as increases in the standard of living. I agree with you there, but there is a disconnect between inventions and wages, there obviously is because a lot of peoples’ wages are now overseas. Tech advances and productivity should increase wages, not decrease them. The public plays the fool, your a perfect example. We are victims of long term coorporate cost cutting. However you were right about a small bit. The richest people have grown their weath more and faster over the past couple of years while we are losing our most important economic driver, our middle class.
Lets go thru some of your points, so hopefully not to many will actually listen to the garbage you said for some reason. First, you can’t measure net worth by what you were able to purchase with barrowed money, especially with houses, cars and loans for medical bills. And housing prices skyrocketed before the last year, maybe year and a half, thats how a lot of people made their money, real estate. I know, I doubled my money in a little place from 2004 to now. Also, income is consumption, they are the same thing, you would know that even if you had the slightest background in economics.
This whole thread started with the topic of the loss in real wages, which shows you exactly what people CAN consume. Credit doesn’t give you extra money, it’s still coming from your pocket, it’s not that you can afford more now, it’s that you want to waste more of your money in interest now. And as that bill slowly gets paid, and your shelling out even more in interest, I hope you pay attention to what that barrowing is doing and will continue to do to our economy, our people, and our way of thinking. People like you don’t realise that countries like China invest tons of money into our debt constantly. It’s not done so we owe them one (though we will one day), it’s done so that they can deflate thier economy that is growing at staggering rates due to all of the industry we send there. So while they grow their middle class and become a developed economy that is paced to pass ours in a few years, and as the dollar gets weaker because we have to lower the interest rates to get people to spend earned REAL INCOME; keep telling yourself that wages don’t indicate or affect standards of living. I’m about to be done with school and start my life and I don’t want to live with, or the effects, of your brainwashed and underinformed point of view. But I would suggest you wake up.
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