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When bad facts downplay a good economy, part 1: Stagnant wages | American Enterprise Institute

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Many of us get much of our news and information from social media. But much of that news and info is distorted or just plain wrong. Take this graphic I saw on Facebook. It’s the sort of thing a friend might share with you:

Now I’m
pretty sure that the “facts” presented here are meant specifically to counter
President Trump’s claim that the US economy is booming and possibly the
greatest ever. Or maybe it’s making a broader point: The US economy has been
failing for decades, and America needs radical change. Either way, it’s the
sort of thing an activist or partisan would cook up. It has no interest in
context or nuance or presenting a complete picture of economic trends. You are
dumber and less informed for reading it.

So here’s
what I am going to do, as a sort of case study. I am going to do six blog posts
examining each of these economic claims as a way of showing how facts get
distorted to make a political point. Here’s the first one:

“Real wages are lower today than in 1973.” This factoid is supposed to show Americans are no better off than nearly a half century ago. Yet average hourly earnings of production and nonsupervisory employees (that’s 80 percent of us, as measured by the Bureau of Labor Statistics) are up by about five percent since 1973, adjusted for inflation as measured by the Labor Department’s updated consumer price index. So not flat, and definitely not lower. But certainly stagnant.

Unfortunately,
the further back you go, the tougher it is to make valid wage comparisons
because of difficulties when adjusting for inflation. A car today is a lot
different than a car back during the Nixon administration. And there were no
laptops or smartphones back then, so a price comparison is impossible. You
generally see wage comparisons go no further back than 1979 and often much
later. There’s also the simple fact that many of today’s workers were kids when
wage growth was weak in the 1970s and 1980s.

But then things picked up. Over the past three decades since the 1990 business cycle peak, typical wages (not compensation overall) have grown by 20 percent. And if you use the “personal consumption expenditures price index” rather than the CPI as the inflation measure — PCE is preferred by the Federal Reserve and Congressional Budget Office — you find a 34 percent increase in average worker wages and about the same for the bottom fifth of workers. Moreover, broader after–tax income measures, rather than wages, show middle–class living standards up by 42 percent since 1979 and 70 percent for the bottom fifth, according to the CBO. Or to look at things another way: Using Census Bureau data, journalist Derek Thompson recently noted that a single–family home in the early 1970s had a median space–per–resident of 507 square feet versus 971 square feet today. Just 36 percent had air conditions back then versus 93 percent today. Also twice as many homes, 46 percent, have four or more bedrooms. Stagnation? Really?

As my AEI colleague and economist Michael Strain notes in his new book The American Dream is Not Dead (from which all these wage stats were taken): “Wages for typical workers have not stagnated for decades. Typical workers have not worked for several decades without a pay increase. A 34 percent increase in purchasing power over the last 30 years is not reasonably described as stagnant growth.”



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