Tyler Cowen, of whom I'm generally a big fan, summarizes an interesting post by Michael Mandel on recent productivity growth (the lack thereof). But he ends by trumpeting Hamilton Project analyses claiming to show that men's earnings declined by 28 percent between 1969 and 2009. This claim, like the Mandel analyses, reinforces Cowen's argument that we are in a Great Stagnation, but it's not true! Stop this meme!
I've not had much time to blog recently, so I submitted a brief critique in the comments to the Leonhardt post that introduced the world to this unfortunate study (co-authored, unfortunately, by a fellow classmate of mine from Harvard's inequality program) and in the comments to the Hamilton post. Here's the basic problem: the analyses assign all nonworking men annual earnings of $0, and since labor force participation among men has declined, the result is a big drop in median earnings over time. But a lot of that decline in labor force participation is attributable to earlier retirement (they include men as old as 64), later and longer school enrollment (they include men as young as 25), rising "disability" rates (which do not correspond in any obvious way with changes in health or job demands but which do correspond with increasing generosity in disability benefits), and other factors having nothing to do with the strength of labor markets.
I re-crunched the numbers as follows. I included all men age 20 to 59 except for those who said they worked only part of the year or not at all because they were retired, going to school, in the Armed Forces, sick or disabled, or taking care of home and family. Using the inflation adjustment that the Hamilton guys likely used, I find a decline in median earnings of 9 percent, not 28.
Note, however, that comparing 1969 and 2009 holds up a likely peak year (when the business cycle was at a high) to a trough year (when it was at a low). Comparing 1969 to 2007 is apples-to-apples, and when I did that, the median was EXACTLY the same in both years (to the dollar, which is a pretty crazy coincidence). Finally, if I use the Bureau of Economic Analysis "personal consumption expenditures" deflator, which I think overstates inflation somewhat less than other commonly-used deflators, median earnings among men rose 7 percent from 1969 to 2007.
Seven percent is no great shakes, but this figure is also too small for assessing how men's economic fortunes have changed over time. None of these analyses account for the fact that as a group, husbands reduced their hours over time in response to rising work and wages among wives. Nor do they account for the rising share of non-wage benefits in total compensation (health and retirement benefits have eaten into wages, presumably following the preferences of the median worker). Nor do they include the impact of taxes (which have declined) and tax credits (which have increased). In addition, even my figures may overstate inflation, thereby understating the earnings increase over time--inflation measurement is much more tricky when choices within categories of goods and services and retail outlets explodes and when so much of what we consume is (thanks to the inter-web) free. Finally, the analyses do not account for changes in the composition of the population. For instance, the fact that more men today are nonwhite and foreign-born pushes the 2009 median down, but it is likely that the typical white, nonwhite, native-born, and foreign-born men are all doing better than the trend in the overall median implies. Someday I'll get to a full analysis.
Subject for discussion (and a future post): how are we as a nation supposed to clearly understand the state of the economy and our living standards when even moderate think tanks and researchers are so eager to hype negativity? As I've said before, policymakers aren't the only people who--individually or collectively--can talk down the economy.
Hope you find the blog interesting. Much like the Strokes, it will change your life (Correction: should be the Shins of course, who are not nearly as good as the Strokes. Correction 2: this blog will not really change your life.). And if you read The Empiricist Strikes Back more than the Times and just don't know, I have a piece in the current Room For Debate forum on Americans' views toward wealth inequality. Enjoy!
I will return to Hacker-mania soon (I hope), but allow me a brief side-trip on inequality. Steve Waldman writes a long post attempting to refute Will Wilkinson's assertion that different price indices should be used for rich and poor:
"As the price difference between caviar and hot dogs expands, Rich will shift his consumption basket, foregoing some caviar for hot dogs. Doing so will make Rich strictly better off than he was in 2000: he could have maintained his old consumption basket, but the opportunity presented by cheap hot dogs gave him a better deal. Poor, on the other hand, will not shift any of his consumption towards caviar and opera, and he cannot shift away, since he was already consuming none of the now more expensive luxuries. Poor’s consumption basket will have gone nowhere over the aughts, while Rich’s will have improved. If we use multiple price indices to claim that the two groups’ “real incomes” stayed the same over the period, we will have missed this change. It is an error of elementary microeconomics."
This can be refuted thusly:
(1) What the Broda et al. research shows is that Rich tends not to forgo caviar for hot dogs in response to the price changes. The size of substitution effects is an empirical question.
(2) You can't measure freedom with a price index.
That is all.
(cross-posted at ProgressiveFix.com and FrumForum)
*added note: Mike informs me that I missed the joke in his title, a Scott-Pilgrim-Versus-The-World nod. I like to think I'm clever and witty, but clearly my lack of sleep from parenting a newborn has left me not so quick on the uptake...)
Mike returned from vacation and promptly put up a post criticizing my take-down of Edward Luce's horrible Financial Times piece on "the crisis of the middle class". It's become apparent to me over the past few years that I've been in D.C. that you can't refute a specific empirical question about the situation of the poor or middle class (e.g., is it in crisis? as in much worse off than in the past?) without being attacked on much broader grounds than you staked out and being called an opponent of these groups or an insensitive jerk. I actually don't disagree with much that Mike writes "against" my "views".
What I do disagree with is the contention that the middle class is in crisis. And I think that it's bad to believe (and assert for mass audiences) that that's true because it hurts consumer sentiment, prolonging high unemployment, and diverts attention from the truly disadvantaged who really are in crisis. Mike can say that that pits me against the middle class (his post was titled, "Scott Winship versus the Middle Class"), but then let me ask Mike and others who would disagree with me a simple question: Why do you think Americans are deluded about their economic conditions, since in June, 7 in 10 American adults said their "current household financial situation" is better than "most" Americans' (Q.25, disclosure: the poll was commissioned by my old employer)? Why are you against the middle class?
Mike says that when I say some problem affects a tiny fraction of the population, that's like a hit man saying that he doesn't kill that many people as a fraction of the population--the "Marty Blank gambit" as he calls it. But look, that's not an apt analogy. If I were saying that we shouldn't give a rat's ass about the tiny share of the population that experiences a bankruptcy, that would be using the Marty Blank gambit. I never said that, and I wouldn't. But if you convince everyone in the middle class that they are just one bad break away from bankruptcy, then you shouldn't be surprised when they don't spend their money and the recovery continues to stall. It's important to convey the facts correctly. Mike is stalling the recovery! Why are you against the middle class, Mike??
Finally, I think the best chart I've seen that puts all of this into perspective (which I made myself) is the following showing health insurance trends:
Anyone who wants the data can email me at email@example.com.
And contrary to Mike's assertion, the fraction of under-insured has not increased. You can read the conclusion of my dissertation if you want to see what the facts show.I'll keep being concerned about the people who are in crisis, but I'm not going to buy in to the conventional wisdom among progressives that the middle class is in crisis.
Kevin notes my last post and then wonders, “What I'm more curious about is what this looked like in the 50s, 60s, and 70s. Was optimism about our kids' futures substantially higher then?”
The results I showed were mostly from a fantastic database of polling questions called “Polling the Nations”, which I recommend to everyone (though it’s not free, it’s not that expensive relative to other resources). That’s why they only start in the mid-80s, and there’s a gap between the mid-00s and the two or three polls I cite from this year and last (my look at this question was a few years ago).
Anyway, Kevin’s query reminded me that there’s another compilation of polling questions that is also amazing—the book, What’s Wrong, by public opinion giants Everett Carll Ladd and Karlyn Bowman. And it’s a free pdf.
So, let me add some results to those I posted before. I’m focusing, to the extent possible, on questions that ask parents about their own children. When people are asked about “kids today” instead of their own kids, they are much more likely to be Debbie Downers—a phenomenon that journalist David Whitman dubbed the “I’m OK, They’re Not” syndrome, which is much more general than questions about children’s future living standards. Also, let’s be careful to distinguish between levels and trends.
First, let’s look at the confidence parents have that life for their children will be better.
· Roper Starch Worldwide (1973)—26% were very confident, 36% only fairly confident, and 30% not at all confident
· Roper Starch Worldwide (1974)—25% very confident vs. 41% only fairly vs. 28% not at all
· Roper Starch Worldwide (1975)—23% vs. 39% vs. 32%
· Roper Starch Worldwide (1976)—31% vs. 39% vs. 25%
· Roper Starch Worldwide (1979)—25% vs. 41% vs. 29%
· Roper Starch Worldwide (1982)—20% vs. 44% vs. 32%
· Roper Starch Worldwide (1983)—24% vs. 38% vs. 33%
· Roper Starch Worldwide (1988)—20% vs. 45% vs. 28%
· Roper Starch Worldwide (1992)—17% vs. 46% vs. 31%
· Roper Starch Worldwide (1995)—17% vs. 44% vs. 34%
· Washington Post/Kaiser Family Foundation/Harvard (2000)—46% said they were confident that life for their children will be better than it has been for them, vs. 48% saying no
That last one shouldn’t be directly compared with the others—not only did it only offer a yes-or-no response, it was also asked of all adults. More on that in a sec. What we see from the Roper surveys is a fairly steady decline in solid confidence, but not much of a trend in pessimism. The main dynamic is that parents have moved from being “very” confident to “only fairly” confident. It looks like there may have been a small decline in optimism from the late 1980s through the mid-1990s. But it’s interesting that from 1973 to 1995, between 61% and 70% were at least fairly confident that their kids would be better off.
The Washington Post polling result provides a nice opportunity to look at the I’m OK, They’re Not pattern, since all adults were asked the question, even though fewer than half had children under 18 in their household. In a poll my employer* commissioned from Greenberg Quinlan Rosner Research and Public Opinion Strategies, we asked parents about their expectations for their children’s living standards. We asked people who had no children under 18 at home about “kids today”. Pooling everyone together, 47% of adults said kids would have higher living standards. But the parents were much more optimistic about their own children, with 62 percent saying their kids’ living standards would improve. So the Washington Post result might have been right in the range of the Roper results had the question been asked only of parents.
Other polls have asked whether parents think their children will be better off when they are the same age:
· ABC News/Washington Post (1981)—47% said better off vs. 43% not better off (non-parents told to imagine they had children)
· ABC News/Washington Post (1982)—43% vs. 41%
· ABC News/Washington Post (1983)—44% vs. 45%
· ABC News/Washington Post (1985)—62% vs. 29%
· ABC News/Washington Post (1986)—74% vs. 19%
· ABC News/Washington Post (1991)—66% vs. 25%
· Newsweek (1994)—47% vs. 39% worse off (question uses “better off” rather than “better off financially”, asked only of adults with children under 18 in the household)
· ABC News/Washington Post (1995)—54% vs. 39%
· ABC News/Washington Post (1996)—52% vs. 39%
· Pew Research Center (1996)—51% said their children will be better off than them when they grow up (question uses “better off” rather than “better off financially”, asked only of adults with children under 18 in the household)
· Pew Research Center (1997)—51%
· Pew Research Center (1999)—67%
So optimism declined between the mid-1980s and early-1990s, recovered starting in the mid-1990s, and generally remained above early 1980s levels (when the economy was in recession). Except for 1983 majorities or pluralities hold the optimistic position.
Another series of polls asked parents whether their children will have a better life than they have had. They also indicate a decline in optimism from the late 1980s to the early 1990s and a subsequent rebound:
· BusinessWeek (1989)—59% said their children will have a better life than they had (and 25% said about as good)
· BusinessWeek (1992)—34% said their children will have a better life than they had (and 33% said about as good)
· BusinessWeek (1995)—46% said their children will have a better life than they have had (and 27% said about as good)
· BusinessWeek (1996)—50% expected their children would have a better life than they have had (and 26% said about as good)
· Harris Poll (2002)—41% expected children will have a better life than they have had (and 29% said about as good)
Strong majorities thought the children would have as good a life as them or better, and while more people thought their kids would have a better life than thought they would have a worse life, optimism failed to win a majority of parents in a number of years. The trends appear to reveal a decline in optimism from the mid- or late-1990s to the early 2000s. Considering all of these trends thus far, a fairly clear cyclical pattern is emerging, as Kevin observed in his post.
The early 2000s dip also shows up in Harris Poll questions asking whether parents feel good about their children’s future:
· Harris Poll (1997)—48% felt good about their children’s future
· Harris Poll (1998)—65%
· Harris Poll (1999)—60%
· Harris Poll (2000)—63% \
· Harris Poll (2001)—56%
· Harris Poll (2002)—59%
· Harris Poll (2003)—59%
· Harris Poll (2004)—63%
The dip is revealed to be related to the 2001 recession, as optimism rebounded thereafter, again following the business cycle. Again, solid majorities generally take the optimistic position.
The longest time series available asks parents whether their children’s standard of living will be higher than theirs. Unfortunately, it appears that most of these polls ask the question of adults without children too:
· Cambridge Reports/Research International (1989)—52% said their children’s standard of living will be higher vs. 12% lower
· Cambridge Reports/Research International (1992)—47% vs. 15%
· Cambridge Reports/Research International (1993)—49% vs. 17% lower
· Cambridge Reports/Research International (1994)—43% vs. 22% lower
· General Social Survey (1994)—45% said their children’s standard of living will be better vs. 20% worse
· Cambridge Reports/Research International (1995)—46% vs. 17% lower
· General Social Survey (1996)—47%
· General Social Survey (1998)—55%
· General Social Survey (2000)—59%
· General Social Survey (2002)—61%
· General Social Survey (2004)—53%
· General Social Survey (2006)—57%
· General Social Survey (2008)—53%
· Economic Mobility Project (2009)—47% said their children’s standard of living will be better (62% among those with kids under 18)
· Pew Research Center (2010)—45% said their children’s standard of living will be better vs. 26% worse
Once again the cyclical pattern emerges, though it is not quite as clear in the mid-2000s. Optimism is far more prevalent than pessimism in every year, reaching majorities from the late 1990s until the current recession. Even today, optimism is no lower than in the mid-1990s, and the EMP poll implies that when looking just at parents with children under 18 living at home, solid majorities continue to believe their kids will have a higher living standard.
Taken together, there is very little evidence that a supposed stagnation in living standards is reflected in Americans’ concerns about how their children will do. The survey patterns show that parental optimism follows a cyclical pattern, generally is more prevalent than pessimism, and did not decline over time. In fact, we can compare beliefs in 1946 to 1997 for one question—whether “opportunities to succeed” (1946) or the “chance of succeeding” (1997) will be higher or lower than a same-sex parent’s has been:
· Roper Starch Worldwide (1946)—64% of men said their sons’ opportunities to succeed will be better than theirs (vs. 13% worse); 61% of women said their daughters’ opportunities to succeed will be better than theirs (vs. 20% worse)
· Princeton Religion Research Center (1997)—62% of men said their sons will have a better chance of succeeding than they did (vs. 21% worse); 85% of women said their daughters will have a better chance (vs. 7% worse)
As one would expect, mothers in 1946 believed their daughters would have more opportunity, but surprisingly that view was even more prominent in 1997. And among men, there was very little change. Notably, unemployment was slightly lower in 1946 than in 1997, so this isn’t a matter of apples to oranges.
Or even more strikingly, consider two polls asking the following question: Do you think your children’s opportunities to succeed will be better than, or not as good as, those you have? (If no children:) Assume that you did have children. · Roper Starch Worldwide (1939)—61% better vs. 20% not as good vs. 10% same (question asked about opportunities of sons compared with fathers)
· Roper Starch Worldwide (1990)—61% better vs. 21% not as good vs. 12% same
While the 1939 question only refers to males, given the relatively low labor force participation of women at the time, it is perhaps still comparable to the 1990 question. However, the unemployment rate was 17.2% in 1939 compared with 5.6% in 1990. Still, the two are remarkably close.
OK, can we put this question to bed? Americans believe their children will do as well or better than they have done, and this belief hasn’t weakened over time. Now let’s get back to arguing about objective living standards rather than subjective fears about them.
* For the love of God, nothing you’ll ever read on my blog has anything to do with my job—there are people at Pew whose ulcers flare at employees’ side hustles like mine.
(Cross-posted at ProgressiveFix and Frum Forum)
Everyone’s approvingly linking to this Edward Luce piece on “the crisis of middle-class America”.I want to set myself on fire.
Seriously, it’s discouraging to see so many people who should know better (because they’ve argued these points with me before) promoting this article.I can’t think of another piece in the doomsday genre—and there are many—that gets it so consistently wrong. I'll stipulate that none of the criticisms below are intended to minimize the struggles that many people are facing. But it's important to get this stuff right. Let me dive in, with Luce’s words in italics and my responses following:
Yet somehow things don’t feel so good any more. Last year the bank tried to repossess the Freemans’ home even though they were only three months in arrears.
The share of mortgages either in foreclosure or 3 or more months delinquent is 11.4 percent, which, because 30 percent of homeowners have paid off their mortgage, translates into 8 percent of homes.So the Freemans’ situation is typical of about one in twelve homeowners, or just over 5 percent of households (since one-third rent).*Their son, Andy, was recently knocked off his mother’s health insurance and only painfully reinstated for a large fee.
Luce is arguing that there’s a new crisis facing the current generation.About 30 percent of those age 18 to 24 were uninsured in 2008 when the National Health Interview Survey contacted them.I don’t have trends for that age group, but the share of Americans under age 65 without health insurance coverage was 14.7 percent in 2008, up from….14.5 percent in 1984.
And, much like the boarded-up houses that signal America’s epidemic of foreclosures, the drug dealings and shootings that were once remote from their neighbourhood are edging ever closer, a block at a time.
Well, the violent crime rate in 2008 was 19.3 per 1,000 people age 12 and up, down from 27.4 in 2000 and 45.2 in 1985.
Once upon a time this was called the American Dream. Nowadays it might be called America’s Fitful Reverie. Indeed, Mark spends large monthly sums renting a machine to treat his sleep apnea, which gives him insomnia. “If we lost our jobs, we would have about three weeks of savings to draw on before we hit the bone,” says Mark, who is sitting on his patio keeping an eye on the street and swigging from a bottle of Miller Lite. “We work day and night and try to save for our retirement. But we are never more than a pay check or two from the streets.”
The key question is, again, Is this worse than in the past?The risk of a large drop in household income has risen modestly, but people experiencing a drop end up much better off than in the past.For example, the risk of a 25 percent drop in income over 2 years has risen from 7 percent among married couples in the late 1960s to 14 percent in the mid-2000s (based on my computations from Panel Study of Income Dynamics data).But if you look at the average income of married-couple families after their 25 percent drop, it rose from $40,000 to $63,000 (in constant 2009 dollars).
Solid Democratic voters, the Freemans are evidently phlegmatic in their outlook. The visitor’s gaze is drawn to their fridge door, which is festooned with humorous magnets. One says: “I am sorry I missed Church, I was busy practicing witchcraft and becoming a lesbian.” Another says: “I would tell you to go to Hell but I work there and I don’t want to see you every day.” A third, “Jesus loves you but I think you’re an asshole.” Mark chuckles: “Laughter is the best medicine.”
Hmmm….just a typical American household…..
The slow economic strangulation of the Freemans and millions of other middle-class Americans started long before the Great Recession, which merely exacerbated the “personal recession” that ordinary Americans had been suffering for years. Dubbed “median wage stagnation” by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. In 1973, chief executives were on average paid 26 times the median income. Now the multiple is above 300.
Adjusting for household size and using the PCE deflator to adjust for inflation, median household income in the Current Population Survey rose from $29,800 in 1973 to $40,500 in 2008 (in 2009 dollars, again based on my compuatations).Factoring in employer and government noncash benefits would show even more impressive growth.In the last expansion, which started in January 2002 and ended in December 2007, the median US household income dropped by $2,000 – the first ever instance where most Americans were worse off at the end of a cycle than at the start.
This is entirely a function of changes in the population composition (more Latinos) and in the share of employee compensation going to health insurance and retirement plans.
Worse is that the long era of stagnating incomes has been accompanied by something profoundly un-American: declining income mobility.
Nope.The evidence is ambiguous, but the best studies imply that intergenerational economic mobility hasn’t changed that much in the past few decades.Intra-generational earnings mobility has increased since the 1950s, though it has declined among men.
Alexis de Tocqueville, the great French chronicler of early America, was once misquoted as having said: “America is the best country in the world to be poor.” That is no longer the case. Nowadays in America, you have a smaller chance of swapping your lower income bracket for a higher one than in almost any other developed economy – even Britain on some measures. To invert the classic Horatio Alger stories, in today’s America if you are born in rags, you are likelier to stay in rags than in almost any corner of old Europe.
Tim Smeeding’s research based on the Luxembourg Income Study shows that in general Americans have higher incomes than their European counterparts as long as they are in the top 80 to 90 percent of the income distribution.Below that, incomes are more comparable across countries, and the living standards of Americans look less impressive.The US has comparable intergenerational earnings mobility to Europe, according to Markus Jantti’s research, except among men (but not women) who start out at the bottom.In terms of occupational mobility, David Grusky’s research shows we're as good or better as anywhere else, but this doesn't translate into earnings mobility because we let people get rich or poor to a greater extent than other countries do.Jantti and Anders Bjorklund have estimated that Sweden would have the same mobility as the U.S. if the return to skill was as high there as it is here.Finally, employer benefits further complicate how "bad" we look.
Combine those two deep-seated trends with a third – steeply rising inequality – and you get the slow-burning crisis of American capitalism. It is one thing to suffer grinding income stagnation. It is another to realise that you have a diminishing likelihood of escaping it – particularly when the fortunate few living across the proverbial tracks seem more pampered each time you catch a glimpse. “Who killed the American Dream?” say the banners at leftwing protest marches. “Take America back,” shout the rightwing Tea Party demonstrators.
The rise in income inequality is mostly about the top 5% of the top 1% pulling away from everyone else, and existing estimates overstate inequality and its growth by ignoring employer and government noncash benefits and possibly by ignoring different rates of inflation in different parts of the income distribution.
Unsurprisingly, a growing majority of Americans have been telling pollsters that they expect their children to be worse off than they are.
Totally wrong.The key here is to only look at polling questions that ask people about their own kids, not kids in general.Here are the relevant survey results I could find:
General Social Survey (1994)—45% said their children’s standard of living will be better (vs. 20% worse)
General Social Survey (1996)—47%
General Social Survey (1998)—55%
General Social Survey (2000)—59%
General Social Survey (2002)—61% said their children’s standard of living will be better (vs. 10% worse)
General Social Survey (2004)—53%
General Social Survey (2006)—57%
General Social Survey (2008)—53%
Economic Mobility Project (2009)—62% said their children’s standard of living will be better (vs. 10% worse)(unlike GSS and PRC, asked only of those with kids under 18)
Pew Research Center (2010)—45% said their children’s standard of living will be better (vs. 26% worse)
BusinessWeek (1989)—59% said their children will have a better life than they had (and 25% said about as good)
BusinessWeek (1992)—34% said their children will have a better life than they had (and 33% said about as good)
BusinessWeek (1995)—46% said their children will have a better life than they have had (and 27% said about as good)
BusinessWeek (1996)—50% expected their children would have a better life than they have had (and 26% said about as good)
Harris Poll (2002)—41% expected children will have a better life than they have had (and 29% said about as good)
Harris Poll (1997)—48% felt good about their children’s future
Harris Poll (1998)—65% felt good about their children’s future (17% N.A.)
Harris Poll (1999)—60% felt good about their children’s future (15% N.A.)
Harris Poll (2000)—63% felt good about their children’s future (17% N.A.)
Harris Poll (2001)—56% felt good about their children’s future
Harris Poll (2002)—59% felt good about their children’s future
Harris Poll (2003)—59% felt good about their children’s future
Harris Poll (2004)—63% felt good about their children’s future
Pew Research Center (1997)—51% said their children will be better off than them when they grow up
Pew Research Center (1999)—67% said their children will be better off than them when they grow up
Bendixen & Schroth (1989)—68% said their children will be better off than they are
Princeton Religion Research Center (1997)—62% of men said their sons will have a better chance of succeeding than they did; 85% of women said their daughters will have a better chance
Angus Reid Group (1998)—78% said children will be better off than them
Washington Post/Kaiser Family Foundation/Harvard (2000)—46% said they were confident that life for their children will be better than it has been for them
Economic Mobility Project (2009)—43% said it would be easier for their children to move up the income ladder
Economic Mobility Project (2009)—45% said it would be easier for their children to attain the American Dream
Also, polls consistently show that Americans say they have higher living standards than their parents.
And although the golden years were driven by the rise of mass higher education, you did not need to have graduated from high school to make ends meet. Like her husband, Connie Freeman was raised in a “working-class” home in the Iron Range of northern Minnesota near the Canadian border. Her father, who left school aged 14 following the Great Depression of the 1930s, worked in the iron mines all his life. Towards the end of his working life he was earning $15 an hour – more than $40 in today’s prices.
Thirty years later, Connie, who is far better qualified than her father, having graduated from high school and done one year of further education, makes $17 an hour.
It’s not valid to compare her pay mid-career to her father’s at the end of his career—and also, how much work experience does she have relative to him?Did she take time off to raise kids?
The pace of life has also changed: “We used to sit around the dinner table every evening when I was growing up,” says Connie, who speaks with prolonged vowels of the Midwest. “Nowadays that’s sooooo rare.”
Time-use surveys show that while parents spend more time working (because of mothers) than in the past, they do not spend less time with children.They spend less time doing things by themselves.
Then there are those, such as Paul Krugman, The New York Times columnist and Nobel prize winner, who blame it on politics, notably the conservative backlash which began when Ronald Reagan came to power in 1980, and which sped up the decline of unions and reversed the most progressive features of the US tax system.
Fewer than a tenth of American private sector workers now belong to a union. People in Europe and Canada are subjected to the same forces of globalisation and technology. But they belong to unions in larger numbers and their healthcare is publicly funded.
Though unionization has declined markedly in most of these countries, and their healthcare policies are increasingly becoming too costly.Also, most of the decline in unionization in the U.S. occurred before Reagan took office.
More than half of household bankruptcies in the US are caused by a serious illness or accident.
This is bad Elizabeth Warren research—she counts a bankruptcy as being “caused” by illness or accident if one was reported, but the household could have been in serious debt before these occurred.At any rate, bankruptcies are exceedingly rare (under 1 percent of households—see Figure 13).
Pride of place in Shareen Miller’s home goes to a grainy photograph of her chatting with Barack Obama at a White House ceremony last year to inaugurate a new law that mandates equal pay for women.
As an organiser for Virginia’s 8,000 personal care assistants – people who look after the old and disabled in their own homes – Shareen, 42, was invited along with several dozen others to witness the signing.
Ah…another representative household…..
More and more young Americans are put off by the thought of long-term debt.
Had enough? I have speculated that to the extent economic insecurity has increased, it reflects the impact of a negativistic media (amplified by gloom-and-doom liberalism).
Pieces like Luce’s—and the blog posts it generates—affect consumer sentiment.Ben Bernanke and Tim Geithner aren’t the only people who can inadvertently talk down the economy.
*Originally said "just under 3 percent", which was incorrect. -srw
(Cross-Posted at www.progressivefix.com--I'm behind in getting these up on my blog...)
Mike Konczal’s inequality post as a guest blogger for Ezra is getting a bit of attention in the blogosphere. Konczal jumps off of an interesting post by Jamelle Bouie to argue that contrary to those who argue that “inequality isn’t so bad,” the unhealthy nature of the cheaper food that is purchased by the poor negates the fact that the poor face a lower inflation rate. Since he suggests I (and Will Wilkinson) think that “inequality isn’t so bad,” I wanted to correct a misconception that Konczal has about theargument of economist Christian Broda that he is responding to. Broda’s actual argument really doesn’t have anything to do with how healthy the things purchased by the poor are.
One argument that has become popular recently is that the increase in income inequality isn’t quite as bad because both the rich and the poor have different ‘inflation’ rates — the prices at which goods increase for the rich have been increasing much faster than the prices at which goods have been increasing for the poor. So even though the poor or median person hasn’t had any wage growth, he has much more purchasing power because of this effect.
This isn’t quite the argument that has become popular recently. What fans of the Broda research argue (i.e., what Broda and his colleagues argue) is that the apparent increase in income inequality may overstate the actual increase in inequality because the poor appear to have a lower inflation rate than the rich. If true, then it’s not that “the poor or median person hasn’t had any wage growth,” it’s that they have had wage growth because of their lower inflation rate — and the wage growth has been big enough that it has kept the ratio of rich-to-poor incomes roughly constant.
Think of it this way. Broda and his colleagues find that the prices of what the poor buy (that is, “price” when the satisfaction derived, or utility, is held constant) have risen less than the prices of what the rich buy. That’s because when prices of related goods change, the poor are more likely to switch to cheaper goods, all the while maintaining their overall level of satisfaction with their purchases. If it becomes cheaper to maintain a constant level of satisfaction, then one’s wages have effectively grown. So poor consumers may switch from Green Giant frozen veggies to generics when the latter go on sale, or they might buy their frozen veggies at the chain a couple of neighborhoods over rather than the local grocery store when the latter’s prices go up. Rich consumers, on the other hand, may be relatively unlikely to stop buying Whole Foods vegetables when the plebian chain’s prices are cut. They may not switch to generics as those products become cheaper relative to those on offer at the farmer’s market.
It’s not that we should be excited about how great the generic frozen veggies bought by the poor are compared with the Whole Foods produce. It’s that we should be excited that the poor are either more willing or more able to economize to maintain a constant lifestyle than the rich are, and so inflation eats into their quality of life to a lesser extent than it does among the rich, holding in check other forces that would increase inequality.
Now, Broda’s research is based on purchases of a limited number of commodities and over a limited number of years, but if his findings extend to other goods and services and to earlier periods (which he believes they do), then the implication is that inequality between the poor and the well-off — though not necessarily the richest of the rich — has not grown. We can still worry about the quality of the food purchased by the poor and their health outcomes, but that’s a story about poverty and deprivation, not about inequality or growth in inequality.
(Cross-Posted at www.progressivefix.com--I'm behind in getting these up on my blog...)
Last week, I spent some time looking at the living standards of the middle class, showing that they have improved notably over time and giving evidence that they are better than or comparable to middle-class lifestyles in other industrialized nations. I will be returning to this issue in a later post in order to address the “two-income trap” argument of Elizabeth Warren, which was raised by Reihan Salam and by Rortybomb.
For now though, I want to talk about the living standards of the poor. It’s important to make the distinction between trends (which I’ll discuss today) and absolute levels of material well-being (which I’ll discuss in a later post) because things can have improved a lot at the same time that they are still not all that great.
Let’s return to the comparison I used in my post on the middle class of “the gold standard” of 1973, when median household income was at its pre-stagflation peak, to 2008. To represent “the poor,” I’ll look at the 20th percentile — the household that is doing better than 20 percent of other households but worse than 80 percent of them. You’ll have to trust me that my research indicates the story would be similar if I were talking about the tenth percentile.
It’s easy to look at only a fairly limited income measure going back to 1973 for the 20thpercentile. Doing so indicates that income at the 20th percentile grew from $19,046 to $20,712 (in 2008 dollars, adjusted by the Bureau’s preferred CPI-U-RS). That’s obviously not impressive growth, though it should be noted that the poor are a bit better off today than they were in 1973 (and they look a little better comparing 1973 to 2007, which is a fairer comparison). Using the PCE deflator, which the federal Bureau of Economic Analysis uses (and which I prefer because of the evidence that the CPI-U-RS overstates inflation, particularly among the poor), income increased by about $3,000 after accounting for the cost of living, or 16 percent. That’s about the same as for the middle class using the same measures and methods.
As I noted in the middle-class post, the official income definition is pretty limited. The Census Bureau’s “Definition 14″ takes into account taxes, public benefits, and the value of health insurance, and it’s easy to look at going back to 1979 (which was at least as good/bad a year for the poor as 1973 was). By this measure, income at the 20th percentile rose from $17,999 to$24,642 from 1979 to 2008 (using the CPI-U-RS). That’s an increase of over one-third—after adjusting for the cost of living. When the PCE is used to adjust for the cost of living, the increase is almost $8,000—45 percent!
A number of commenters to my post on the middle class didn’t like that the value of health benefits were included in my “comprehensive” income measure. I prefer including them in “income” because employer health care costs have caused earnings growth to be quite a bit lower than it otherwise would have been, and employer- and publicly-provided health insurance contribute to living standards. It is possible that the way the Census Bureau estimates the value of health insurance exaggerates improvements in well-being, but it is not simply the case that rapid health care inflation negates those estimates. Many health economists believe that rising health care costs do reflect corresponding improvements in the quality of care received. At any rate, whether or not you believe I have a dog in this fight, hopefully you believe that the Census Bureau doesn’t.
Nevertheless, we can look at the trend omitting the value of health insurance in 2008. Doing so offers a somewhat conservative estimate of the increase because I can’t omit the value of insurance from 1979. The increase, however, is 21 percent using the CPI-U-RS, and 29 percent using the PCE.
So it seems pretty likely that the living standards of the poor in the U.S. have improved fairly robustly in recent decades. Before leaving behind the question of trends, I should note that there is pretty overwhelming evidence that male workers who don’t get further education beyond high school have seen real wage stagnation (though the story for the median male worker, as I showed in the middle-class posts, is much better). The fact that household incomes at the bottom have grown reflects a decline in taxes paid, an increase in the value of means-tested benefits, and greater work among women (including single women). Computations I have done indicate that confining things to non-elderly households doesn’t affect the story importantly; nor does adjusting incomes for household size.
This issue of greater work among women is one of the last remaining arguments to my case that I feel I need to address more, because it is obviously key to the question of whether higher incomes really reflect improved living standards broadly construed. After all, we could all work more hours and sleep less, which would improve our incomes but not necessarily our quality of life. I’ll take this up in my next couple of posts, but suffice it to say, you can assume my read of the evidence doesn’t overturn the case I’ve been trying to make thus far.
(Cross-Posted at www.progressivefix.com--I'm late putting these up on my blog...)
My last post tackled inequality trends in the U.S. and how progressives ought to think about them. Now I want to look at middle-class living standards. In the course of basically agreeing with Dalton Conley that progressives should be more concerned with poverty than inequality,Kevin Drum argues that what got lost from the Conley analysis is the stagnation of the middle class (“sluggish middle class wages in a country that’s been growing energetically for decades”). And yesterday he endorsed the views of economist Raghuram Rajan, who blames the financial crisis on “the purchasing power of many middle-class households lagging behind the cost of living.”
Kevin has always been one of my favorite bloggers, but I have to disagree with him here—both in terms of the level of income the typical American has and in terms of recent trends, a careful look at the data implies that the middle class is doing pretty well. The common belief among progressives that this isn’t the case causes us to misdiagnose what the nation’s most pressing economic problems are and to put forth an agenda that doesn’t resonate as strongly as we think it does.
My friend Steve Rose really deserves the most credit for trying to draw attention to the reality of middle-class living standards being better than the left believes. In a much-circulated report for PPI and in his analyses for Third Way, Steve showed that, for instance, when measured correctly, the typical working-age American’s income is much higher than official statistics imply.
Many progressives thought that Steve was somehow pulling a fast one, a view with which I strongly disagree, but let me make similar points in a more transparent way here. First, consider what many progressives consider “the good old days”—the height of the pre-1970s economic boom. In 1973, the median inflation-adjusted income was higher than it had ever been and higher than it would be again until 1978—$45,533 (in 2008 dollars). Call this the gold standard before, in the conventional progressive telling, things started going south.
How much did things go south? Well, in 2008 the median was $50,303. That’s right—about $5,000 higher (after adjusting for changes in the cost of living). This improvement understates things because households also became smaller over time, and because the inflation-adjustment here probably overstates inflation. For instance, if one uses the Bureau of Economic Analysis’s Personal Consumption Expenditures deflator, the increase from 1973 to 2008 was about $7,700, or 18 percent. Not only does that still not adjust for declining household size, it also doesn’t include changes in taxes, non-cash benefits, the value of health insurance, and capital gains. Incorporating these adjustments shows an increase in living standards that is more like 40 percent.
Rather than household income, others on the left point to stagnation in men’s wages (women’s wages have increased dramatically by any measure). For example, the Economic Policy Institute estimates that the median male worker’s hourly wage was $16.88 in 1973 and $16.85 in 2007. However, EPI’s figures show that when fringe benefits are taken into account, the median male worker’s hourly compensation increased by somewhere between 5 and 10 percent over this period. And these estimates don’t use the PCE deflator. Nor do they account for changes in taxation and public benefits—the very means we use to mitigate low income.
To review, “stagnation” of household income or male wages means that after adjusting them for the rising cost of living, they are as high as they were in the glory days of the 1960s and early 1970s–they have actually increased. When analysts on the left concede these increases, they then move the goal posts and argue that wages have not grown as much as they should have. Typically, they contrast modest wage growth with more rapid productivity growth. But too often these analyses are done on an apples-to-oranges basis. Critics left, right, and center have all pointed out flaws with the kind of comparisons that EPI and others make. Careful analyses reduce the gap between productivity growth and wage and income growth, though they don’t necessarily eliminate it. At any rate, economic theory says that compensation will increase with productivity all else being equal, and all else has not remained static.
It is certainly true that wage growth has been slower since 1973 than in the two previous decades. But that isn’t a realistic bar to use. The U.S. was the only major economy left standing after World War II, and there was little foreign competition putting downward pressure on manufacturing wages and jobs. The period between WWII and 1973 was anomalous—it could not have been expected to have lasted.
The other way to judge middle-class living standards in the U.S. is to compare them to those in other countries. The Luxembourg Income Study shows that at most points in the income distribution (the 25th percentile, the median, the 75th percentile), income in the U.S. exceeds that in nearly all European countries, including Sweden, the model for many on the left. (The most accessible evidence on this is in a 2002 article in the journal Daedalus by Christopher Jencks.) Determining how to incorporate publicly provided benefits such as education and health care is very complicated, but the evidence we have indicates that American middle-class living standards are at worst comparable to those in European nations.
Trying to persuade the middle class that it is worse off than it is potentially has harmful side effects. For one, as economist Benjamin Friedman and sociologist William Julius Wilson have argued, people are more generous when they feel they are doing well. When they feel economically threatened, they are more inclined to protect what they have than to help others. What’s more, widespread economic malaise can be a self-fulfilling prophecy, preventing people from making the individual choices that ensure, for instance, a strong recovery from recession. In terms of policy, the belief that the middle class is doing poorly can lead to scarce public resources being diverted to those doing relatively well rather than being used to help those truly in need. And politically, it can lead to a tone-deaf and unpersuasive populism that does little to help Democrats win in swing districts and close elections.
Again, the point here is that progressives should care about the facts. Up next…the poor.
(Cross-Posted at www.progressivefix.com -- I'm late adding these to my blog....)
Happy New Year everyone! I am very late to this debate, but I wanted to weigh in on the conversation launched by Dalton Conley’s pre-holiday American Prospect article on progressivism and inequality. In case you missed it, Conley argued that progressives shouldn’t care that much about inequality and that we should instead care about the poor. Inequality, he showed, has grown between the rich and the middle, but not between the middle and the poor. Bruce Bartlett, weighing in from the right, agreed.
I’ll address the living standards of the middle class and the poor in subsequent posts, but let me add my two cents about inequality trends in this one. An analysis I conducted back in November showed that what has likely happened is that the very top—the top one-half of one percent—has pulled away from everyone else, though the increase from 1980 to 2009 has probably been fairly modest. Whether this has been a good or bad thing—or aside from trends, whether higher inequality in the U.S. than elsewhere is a good or bad thing—ought to depend on three questions, empirical and normative, none of which we have much of a handle on.
First, how does letting the rich get richer affect the absolute living standards of everyone else? As Alan Reynolds has argued, measures of inequality tend to reinforce a fixed-pie conception of national wealth—gains by the rich come at the expense of everyone else. But of course, the pie is not fixed in size, and it may be that allowing the rich to get a greater share of the pie makes for a bigger pie and bigger slices for everyone (a point made by Bartlett). Think about Rawls’s maximin rule—that any inequality that results in the worst-off being better off is just. It’s not necessarily the case that greater inequality must help out those who fall behind, but it’s certainly plausible.
Second, how does letting the rich get richer affect the relative deprivation experienced by everyone else? There are two questions here. When the rich get richer, people at the bottom and even in the middle may get priced out of certain goods and services, as prices get bid up by the wealthy. On the one hand, it may be that yachts become less affordable to the non-rich, which presumably no one would get too worked up about. On the other hand, if the price of an Ivy League education or prime neighborhoods becomes unaffordable to the non-rich, that would have bigger implications. Beyond the issue of being priced out of goods and services, inequality may make the non-rich feel less well off—even if their absolute living standards improve. If the Nissan Sentra you own is nicer than the Chevy Cobalt you used to have but feels no better since more people are driving Jaguars than in the past, then there’s room for debate about whether you are “better off”.
Third, if inequality makes most people better off in absolute terms (by making the pie bigger) but makes them feel worse off in relative terms (if their bigger piece feels smaller than before because of how much bigger others’ slices have gotten), then how much weight are we to give each effect? Unlike the other two considerations, this one has empirical and normative dimensions. You may think that being better off but feeling worse off is a net change for the worse, while I may think that it’s only being better off that matters. Robert Frank has made the case—not entirely convincingly, in my view—for the former view.
If you’re looking for the answer to these questions in a blog post, then my heart goes out to you. What I will say is that a situation in which the top 1 in 200 pulls away from the bottom 199 is quite a bit different than a situation in which the top 40 pulls away from the bottom 160, since relative deprivation is likely to be a bigger problem in the latter case.
More to the point, reflexive soak-the-rich tendencies among progressives are unjustified—the details and the facts matter, unless you simply are opposed to inequality regardless of whether it might help the bottom and middle.
Middle-class living standards next…