Tag: income inequality

Have Wages Stagnated Since 1970?

Authored by: Matt Palumbo

The myth that wages have stagnated since the 1970s has been utilized by both ends of the political spectrum over the decades for differing goals. Ron Paul observed in his 1982 book “The Case for Gold” that inflation adjusted wages declined from 1971, which he attributed to Nixon hammering the final nail in the gold standard’s coffin in ’71.  The late Milton Friedman noticed a similar stagnation in his 1984 book “The Tyranny of the Status Quo,” though he was making a point about the harms of hyperinflation.

In recent times, as the period of alleged stagnation now spans almost five decades, liberals have tried to dominate the narrative. Most (but not all) choose to ignore the alleged wage stagnation of the 70s, and instead pretend the problem started with Ronald Reagan (as an indictment of his tax reform efforts, or anti-union policies). “Wages for ordinary workers have in fact been stagnant since the 1970s, very much including the Reagan years” wrote the far-left economics Nobel Laureate Paul Krugman. Meanwhile Robert Reich, who only pretends to be an economist, asks “Why did the playing field start to tilt against the middle class in the Reagan recovery, and why has it tilted further every since?” He adds, “don’t blame globalization. Other advanced nations facing the same global competition have managed to preserve middle class wages” before blaming Reagan’s anti-union policies.

And surprise surprise, they’re both wrong.

So what kind of statistical trickery is afoot here?

Inflation Isn’t an Exact Science, and Earnings are More than Just Wages 

While the Consumer Price Index (CPI) is the most commonly used inflation measurement (and used by our government when determining social security raises, and other cost of living adjustments), it actually has a known tendency to overstate inflation. Naturally, this overstated inflation makes statistics on inflation-adjusted wages more unreliable (and understated) the more years back you we measure.

So what do other measurements say? According to George Mason University economist Don Boudreaux, it is true that from the mid 1970s to 2006, average wages did decline slightly by 4% if we measure inflation using the CPI. But what of other inflation metrics?

    • According to the Personal Consumption Expenditures Deflator (PCE), wages rose 10% over the same period
    • According to the Gross Domestic Product Deflator (GDP), wages rose 18%

Futhermore, nearly twice as much of the typical employee’s pay is in the form of fringe benefits today (19% of total compensation) as opposed to 40 years ago (10%). Put differently, nearly twice as large a share of an employee’s income doesn’t show up as income in the statistics. 

With all this in mind, let’s compare how “liberal reality” stacks up against “reality reality.”

Below is a chart from the left-wing Economic Policy Institute, which claims to show a massive divergence in productivity and wages since the 1970s, suffering from all the statistical flaws I’ve discussed so far.

And yet, if all we do is include benefits and change the inflation measurement from the CPI to the Implicit Price Deflator, a radically different picture emerges.

Labor’s Share of Income Has Not Changed

The “wage stagnation” myth is most often used in discussions of income inequality (presumably to paint the picture that greedy capitalists are “taking” all the money, while workers are left with peanuts). To dispel that myth, one can simply look at worker compensation relative to corporate income. According to economist Scott Winship:

  • In 1973, U.S. workers received 70 percent of the income produced by businesses; in 2007, they received 69 percent.
  • For the past 70 years, labor’s share of income has fluctuated—almost without exception—between 67 percent and 71 percent.

  • Since 1929, the U.S. business cycles with the highest productivity growth have also featured the highest growth in hourly compensation.
  • Middle-class pay has not stagnated: during 1997–2011, productivity rose by 35 percent, aggregate compensation rose by 32 percent, median hourly compensation increased by 20 percent, median female pay climbed by 25 percent, and median male pay grew by 18 percent.

If that’s what stagnation looks like, I’d say we’re doing pretty well.

While the “wages have stagnated since the 70s/80s” argument is bunk, what of the argument that wages are stagnating in an otherwise spectacular Trump economy? Stay tuned to see that argument blown out of the water later this month.

Three Misleading Income Inequality Statistics from Michael Moore

Authored by: Matt Palumbo

As cliche as it is to quote Mark Twain in stating that there are three kinds of lies; lies, damned lies, and statistics, discussions over income inequality and its effects are often  exhibit A in “how to lie with statistics.”

Let’s review a number of those: Michael Moore edition.

Claim: During the Reagan era, while productivity increased, “wages for working people remained frozen.”  – Michael Moore, 2009 

This is a common claim: that Ronald Reagan cut taxes, and then all the gains went to the top, leaving wages stagnating for the average American since.

This is partially true. Wages alone have diverged from productivity (though that’s been since the early seventies). But wages aren’t everything that makes up a person’s income, since most people get benefits as well. It’s misleading to only measure wages when the percentage of income in the form of “fringe benefits” has nearly doubled in the past 40 years. Below is a chart of productivity and total compensation, as calculated by the Heritage Foundation:

Noteworthy is that the London School is Economics has actually found a lower productivity and compensation gap than Heritage, that “productivity has grown 13% more than compensation since 1972 in the US.”

The reason that total compensation has been increasing, but wages have stagnated has to do mainly with healthcare costs. As the cost of providing healthcare benefits to employees increases, this comes partially at the expense of wages.

Claim: “Just 400 Americans — 400 — have more wealth than half of all Americans combined.” – Michael Moore, 2011.

This statistic is particularly interesting, because there are also babies that have more wealth than 25 percent of Americans combined by Moore’s metrics. Why? Because he’s measuring net worth, and thanks to student loan debt, credit card debt, among other liabilities, 25 percent of Americans have a negative net worth. If you have no debt an a dollar in your pocket, you have more wealth than 1 in 4 Americans combined. Don’t you feel rich?

While Moore made this claim to link income inequality to wealth inequality (which seems like an obvious connection), there are interestingly a number of countries with low levels of income inequality, and considerable wealth inequality. Denmark, which is the most equal country when it comes to income inequality. Denmark’s richest 10% has as much wealth as 70 percent of all Danish citizens combined, while the figure in America the top 10% control 77% of all wealth.

Claim: Back in 1989, in his debut 1989 film Roger and Me Moore brought to the audience’s attention that “The CEOs of our top 300 companies, are earning 212 times what their average worker is earning.” That gap has since grown to a gap of approximately 270:1, at our nation’s 350 largest companies.

As Moore admitted, this is only at the nation’s largest companies. The average orthodontist or psychiatrist both earn more than the average CEO, so it’s a useless statistic at the national level.

While Moore would like to present this information with the implication that this rise in CEO pay (at the largest companies) is at the expense of worker wages, this phenomenon is entirely due to increases in stock-based compensation as a percentage of total compensation of top executives, and rising stock prices. A study from the National Bureau of Economic Research concluded that “the sixfold increase in CEO pay between 1980 and 2003 can be fully attributed to the sixfold increase in market capitalization of large U.S. companies during that period.”



October 9, 2017: Ep. 564 Liberals Are Getting Worried

In this episode –

The NFL “Take a Knee” protests have been a catastrophe. Look at these astonishing poll numbers.

Are the liberal claims of “systemic oppression” based on the real world, or based on a media-Hollywood-academia-fabricated world?

The Vice President takes a strong stand against the anti-American NFL protests.

A prominent Democrat just made the outrageous claim that “there have been more mass shootings than days of the year.” I debunk this nonsense in the show.

Another prominent Democrat admits that no law would have stopped the Las Vegas attacker.