Monday, July 6, 2015

Maybe Incomes Have Not Been Stagnant Since 1979

See Just How Stagnant Are Wages, Anyway? By Josh Zumbrun of the WSJ. 
"Since 1979, real earnings are up only 17%, after adjusting for inflation using the consumer-price index. For a period of nearly three and a half decades, it’s a disappointing run, although broken down by gender, the picture is more mixed. As women have increasingly entered the workforce, stayed in it for longer, and whittled down the wage gap, their earnings have grown by 48%. Men, by contrast, have seen wages drop by 4%."

But this analysis ignores one of the major shifts in the labor market in recent decades: Employers have paid larger and larger health insurance bills for their employees. “From the employer’s standpoint, the costs of each worker is the total package of cash wages and benefits,” Mr. Rose writes. And from the standpoint of many employees, too, receiving good health insurance is a valuable part of a compensation package.

When the cost of employee benefits is included in Mr. Rose’s chart (using a definition of total compensation from the Congressional Budget Office), suddenly workers are doing quite a bit better. Real median compensation, adjusted for the consumer-price index, is up 25% from 1979. For women, it’s up 56% and for men–even after the losses of the recession–compensation is 3% higher than in 1979. That’s still a pretty stagnant set of decades for men.

But Mr. Rose argues that one more change is important: using the right inflation index. The personal consumption expenditures price index has generally shown inflation to be lower than the CPI. And many economists believe the PCE is the more accurate index, since it better accounts for the ways that consumers’ consumption behavior changes over time. The Federal Reserve, for example, prefers the PCE price index.

When Mr. Rose looked at real compensation, adjusted for the PCE price index, the median worker has seen a gain of 38%. The median woman has gained 73% and the median male 13%.
The period since 2007 has still been rough, by this metric, but the notion of a decades’ long stagnation is no longer supported.
Switching from earnings-and-CPI to total compensation-and-PCE also changes the story about just how badly male wages are stagnating.

When looking at earnings, men with bachelor’s degrees have seen real earnings grow by only 6%. But switching to the CBO’s measure of total compensation, and the Fed-preferred PCE price index, male college graduates have seen their inflation-adjusted earnings climb by 26%.

According to the Census Bureau, about 12% of American men over age 25 have a master’s degree, professional degree or doctoral degree. When looking at earnings, this relatively small group appears to be the only educational group in the U.S. doing well.

But nearly one-third of Americans have a bachelor’s degree, and when looking at total compensation, this much larger group has made noticeable gains in recent decades."

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