Why its wrong to say worker wages haven’t gone anywhere since the 1970s

labor income

“Workers wages have been flat for decades.” It’s a common talking point on the left, especially among unions. But how you measure earnings and inflation can have a big effect on those numbers. Real earnings for men, deflated by the consumer price index, are down 4% since 1979. (Earnings for women are up 48%.) But if you add in benefits and use a different inflation measure, you get a very different result. Like down becomes up. Here is the Wall Street Journal’s Josh Zumbrun on research by economist Stephen Rose: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.

Likewise, earnings for male college grads are up 26% vs. 6%. Also, the overall earnings numbers are in line with what other researchers, including the CBO, have found.

Anyway, we all would prefer these earnings gains to be better, and more from wages rather than health benefits. On the other hand, maybe US performance looks a lot better when you consider the economy also created some 50 million jobs, absorbed lots of low-skill immigrants, and dealt with increased competition from low-wage countries. AEI’s Ed Conard:

Since the mid-1980s, the United States increased its workforce by 40 percent, or 40 million workers – not counting the tens of millions of offshore workers the U.S. economy employed in Mexico, China, and Southeast Asia. … [Moreover], the United States provided – at least until the Crisis – viable employment for its youth, its marginally employed, its near-retirees, and its woman, many of whom work part-time and temporarily exit the workforce to raise children. As a group, these workers have below-average productivity. Also, a large share of the forty million new American workers employed since the mid-1980s have been low-skilled, younger-than-average Hispanic immigrants, largely lacking high-school degrees and with poor English-language skills. Obviously, this group has lower productivity than the average U.S. worker.

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