Thursday, September 07, 2006

The Lie of Diminishing Wages

The other day, I was listening to the McLaughlin Group on PBS, and Eleanor Clift of Newsweek (not exactly my favorite journo!) made a claim that workers are getting screwed, and after adjusting for inflation, the average worker earns less than what he/she did in 1973. I immediately thought this was a stunning claim that, if true, would have me question the merits of the capitalist society we live in.

Time allows a more rational analysis. First, why 1973? It seems an arbitrary starting point. Any time anyone makes a claim relative to a murky baseline, be suspicious ... be very suspicious. So I used the Bureau of Labor Statistics web site to probe the data and produce the graphs used in this post. (All data is for the duration that earnings data is available)was dramatic

The first graph is a plot of the average weekly earnings in 1982$ (that is correcting for inflation). Now it becomes obvious why Clift uses 1973, it was the year of peak weekly earnings. Ok, but isn't her point true that the average worker makes less than he/she did in 1973? Well, yes it's true, but not because corporations have been screwing John and Jane Doe.

This second chart presents the Consumer Price Index for all urban consumers (CPI-U). As you can see, inflation (rate of change of the CPI-U) soared in the 1970s, thanks in large part due to oil prices and stagflation, until about 1983, after which the inflation rate has been relatively stable. The real wages of workers reflects that fact - tumbling in the years following 1973, and stabilizing after 1983 (yes, there have been ups and downs related to economic climate, but that's natural).

Critics of static wages use another subterfuge. They use a sleight-of-hand analogy to imply that the stagnant average weekly wages of a population imply stagnant wages for an individual worker. That is simply not true - people at the high end of the wage cycle retire, and are replaced by young men and women at the bottom of the cycle. The performance of average wages then is quite demographics of the population, and heaven knows Americans aren't having babies like there's no tomorrow. Then, in an ageing population, we should see real wages decline, and that we don't is a reflection of how the fruits of economic prosperity are translating into real wage improvements for the average worker!


Anonymous said...

thought I'd see something on melting icecaps...and dying polar bears...

Karthik Narayanaswamy said...

Well no, you won't see anything about icecaps and polar bears because that's not what the discussion is about. I'm sorry, anon, but you have once again indulged in a standard ploy of liberals in changing the topic when confronted with the truth about something. The post is about wages, and the notion that markets have rewarded workers unlike the leftist hype.

Global warming is a seperate issue, one that is not merely one of capitalist societies (the Soviet Union was one of the worst stewards of the environment) - one that I hope to address in a later post. For the time, let me say I do care a lot about the environment ... I am a tree hugger, but I think the solution isn't purely regulatory, and that some components of the way out, like public opinion, are coming together.

Anonymous said...

All politicians use that ploy.

Know this is also off-topic but since you don't have an email address on your site...just wondering if went to psbb in chennai a long time ago?