Any adult who was alive in the US during these three decades realizes that this number grossly understates the gains of the typical household. One indication that something is wrong with this figure is that the government also estimates that real hourly compensation of employees in the non-farm business sector rose 39% from 1985 to 2015.Feldstein is talking about the mean whereas most of this debate is over the median but let’s read on:
With the traditional definition of money income, the CBO found that real median household income rose by just 15% from 1980 to 2010, similar to the Census Bureau’s estimate. But when they expanded the definition of income to include benefits and subtracted taxes, they found that the median household’s real income rose by 45%.Let’s see – if we cut taxes a lot while increasing transfer payments, then we can get a boost to disposable income. So much for fiscal responsibility. But let me turn this over to Laura Tyson:
Over the last 35 years, real wages in the United States failed to keep pace with productivity gains; for the typical non-farm worker, the latter grew twice as fast as the former. Instead, an increasing share of the gains went to a tiny fraction of workers at the very top – typically high-level managers and CEOs – and to shareholders and other capital owners. In fact, while real wages fell by about 6% for the bottom 10% of the income distribution and grew by a paltry 5-6% for the median worker, they soared by more than 150% for the top 1%.The chart provided by David Dayen bears out Dr. Tyson’s first sentence:
Perhaps for this reason, the wage/productivity chart has been under attack, with economists and pundits trying to explain away the gap as something not fundamental to our economic story. But Mishel, the originator of the chart, is pushing back, arguing that critics “are denying reality through technical arguments and sleight of hand.”... Harvard economist Robert Lawrence makes the gap disappear in several ways.Dayen discusses each of Lawrence’s tricks here but let’s note that Greg Mankiw hearts what Lawrence even as it includes this:
when the numbers are measured more comprehensively—when wages are broadly defined as compensation to include benefits, comparable price indexes are used to calculate differences in wage and output growth in constant dollars, and the output is measured net of depreciation—the puzzle of lagging wages disappears, at least for 1970–2000. While prior to 2000 blue-collar workers fared especially poorly, constant dollar labor compensation for all workers actually kept pace with output.2000? Jeb’s other brother became President right after that hiring Team Republican as his economic adviser. So the Team Republican reply is that we can massage the data in such a way that it appears that workers were doing fine until we took office. Oh yea – Jeb should definitely run his campaign on this message.