Monday, May 15, 2017

Researchers Provide New Data on the Stagnation of Middle Class Wages

The National Bureau of Economic Research issued a paper (behind a paywall) last month that the Washington Post reported on last week.  The message that American wages have been stagnating since the 80s or 90s is terribly optimistic.  The wage stagnation has been going on since about 1960.

On average, workers born in 1942 earned as much or more over their careers as workers born in any year since, according to this research — and workers on the job today shouldn’t expect to catch up with their predecessors in their remaining years of employment.
Assuming workers born in 1942 were working by 1960 to 1962, those people have probably earned as much or more than workers born 40 years later and starting work 2000 to 2002.
The new paper includes some “astonishing numbers,” said Gary Burtless, an economist at the nonpartisan Brookings Institution who was not involved in the research. “The stagnation of living standards began so much earlier than people think,” he said.
The study examined career earnings for workers born in every year since 1932, and differentiated between men and women.  Those who didn’t work or only rarely worked were excluded, focusing instead on those who spent at least 15 years in the labor force.  Wage and salary data from the federal Social Security Administration was used to calculate the career earnings of the median worker born in each year.

One of the difficult traps in a study like this is normalizing the wages to constant dollars, which they state they've done, but about which the Post article says nothing.  The original is behind a paywall, so I can't tell from there either.  Chances are they used something based on official CPI numbers, which we know are not only manipulated wholesale, but the manipulation methods change over time.  This raises a flag with me, but I don't think it's fair to dismiss the study over just that. 

The charts they produce are like this, showing the wage vs. time progression for various groups that started working in particular years.  Their incomes at ages 25 and 55 were compared.  In this plot, the fist cohort were 25 in 1960.  The cohort that was 25 in 1967 started out making almost 30% more and their earnings 30 years later were only about 8% higher.  You can see how the cohort that was 25 in 1980 started out at the same adjusted wages as those from 1967 and in 2010 they were making less than a worker from 1967 at the same age in that workers' life. 
According to the paper's abstract:
First, from the cohort that entered the labor market in 1967 to the cohort that entered in 1983, median lifetime income of men declined by 10%–19%. We find little-to-no rise in the lower three-quarters of the percentiles of the male lifetime income distribution during this period. Accounting for rising employer-provided health and pension benefits partly mitigates these findings but does not alter the substantive conclusions. For women, median lifetime income increased by 22%–33% from the 1957 to the 1983 cohort, but these gains were relative to very low lifetime income for the earliest cohort.
The chart for women:
The Post adds:
The study, published Monday by the National Bureau of Economic Research, has not been peer reviewed, so other economists may yet challenge both specific results and the paper’s general conclusions. All the same, the research offers an answer to a couple of important questions that have been nettling economists.

In particular, the results show that more unequal incomes are not just a result of a widening gap between younger and older workers. Even among older workers, typical incomes have been falling while the wealthiest have been enjoying more and more of the economy’s gains. Poorer workers — who tend to be younger — will earn more as they get older, but they are not likely to earn enough to make up the difference.
The short version to me is first of all, "it's worse than we think", and that leads to the question of "why is this happening".  I've written on the topic of the decline in wages several times and have had a tendency to think it correlates with going off the gold standard to debt-based "phony money" in 1971, but the problem predates that by a decade.  Which is not to say going to debt-based money couldn't be a factor in the problem since the 70s, perhaps exacerbating the root problem.  Nothing says problems can't have more than one cause.  The researchers don't offer any mechanisms to explain, saying that perhaps they're looking in the wrong places and need new avenues of research. 
In the past, a good guide to forecasting typical career earnings among Americans of a given age has been their average income they were 25.

The implication, Guvenen argues, is that economists should search for explanations for households’ current financial woes in the youth and childhood of today’s workers.

“We are maybe looking at the wrong place for the solution to stagnation in wages and rising inequalities,” Guvenen said. “To understand higher inequality, we should turn and take a closer look at youth.”
I'd like to see the same type of study done across other economies.  Most people will say it's because of off-shoring or outsourcing jobs or blame it on the Evil Rich People.  Bill Bonner had a good summary in a piece I quoted a year ago
Most economists (and politicians) have blamed world trade for stagnant U.S. wages. The median wage in China is only $8 a day. No wonder U.S. factory hands can’t catch a break; who can compete with that? 

But Germans compete with the Chinese, too. And their wages have gone up! In real terms, after adjusting for inflation, wages in France and Germany have been going up at a 0.7% rate for the past 15-20 years.
So why are wages in France and Germany going up while American wages are going down?   


  1. The value of labor is dependent on supply and demand and both explain the reason we have a problem. First, it began in the 50's but accelerated in the 60's and later...immigration and the change in which races were preferred. Prior to this period any immigration, other than European was frowned upon in order that we could keep our culture. After this period those rules were discarded and we got loads of people from other cultures...including Mexico. When this failed to continue lowering labor costs then we got floods of illegals and still have an illegal problem. Illegals work even cheaper than legal aliens. When that still didn't lower wage costs enough we started importing labor via the work visa program...and no one is auditing business replacing available citizen labor with cheap imported or illegal alien labor. When they needed more relief they then established trade agreements that do not benefit citizen labor as imported labor includes cheap foreign labor and little or no tariffs to offset the loss to local labor but just GREAT for the import business. I retired as an aircraft mechanic and I see how costs were contained by changing the maintenance rules in the FAA. At one time all US aircraft had to be maintained in the US....that changed and now heavy checks are done overseas, primarily in places like Singapore. There is a reason we refer to politicians and the oligarchy as the global elite and a reason Trump won after decades of failure by the uniparty democrats and republicans. The uniparty likely thinks it can outlast a Trump just as they thought they outlasted and took over the tea party. THEY ARE WRONG.indyjonesouthere

  2. Anonymous (above) hit the nail on the head.

  3. As a former truck driver. I started at 22 years old and after 4 years in the Corps. Local driving jobs in Arizona were $12.50 to $13.00 an hour. Today, checking Craigslist, the majority of jobs for driving are $13-14 a hour. Meanwhile the prices of new cars have doubled, housing is unaffordable at those wages. Obamacare takes another 20% off the paycheck. Meanwhile I moved to Asia and living on 1/4 my US take home wages, I own a nice house, my lights are on and am well fed.


  4. Every report like this should either be ignored if you don't have the time to look into it deeply or studied to discover what their bias is and what they were trying to "effect" with their report. Statistics is a wonderful thing. I can prove almost anything with it and if you paid ne enough I can then disprove everything I proved. Tell me what you want and I can prove you absolutely correct.

    One example of what goes into these was from an old report about pay for women. They equated a chief librarian in San Francisco to a chemical engineer to "prove" that women were payed less/valued less. Seriously! Does anyone think a librarian is the equivalent of a chemical engineer???

    Having said this I don't Doubt that there is pay stagnation or a poor economy or excessive taxation and regulation that is real and needs to be dealt with. But understand that people who do these studies and then decide what to publish and what to hide and how to characterize it that they are not your friends and have your best interests in mind. They want to convince enough people of something to cause change that they want. What they have told us could be 100% true but merely left out everything that would refute their conclusion. That is they may not have lied but are still intending to deceive.

    To me it is like when your young child says "I didn't do..." that is a tell and he/she did do something and your job is to figure out what that was. With reports like this it tells me that some group is trying to change policy to benefit someone/some organization and your job is to find out who and what. Because I can assure you with almost perfect accuracy it is not intended to benefit YOU but it is equally likely that YOU will pay for it in some way.

  5. And yet...and yet...there is Chantrill's 30,000-ft analysis:

    1. As you say, it's a 30,000 foot view. Over hundreds of years.

      The problem with the way he talks about GDP divided by the population is that numerically a small group getting a much bigger chunk of GDP is going to have a bigger effect than many people getting a smaller slice. Which seems to be what's going on.

  6. Since 1965 and Hart-Celler, the US has been importing the Turd World. You shouldn't be surprised that the US is becoming the Turd World, in social trust, in appearance and in wages.

    1. No, no! You have it all wrong. In 1967 Kennedy and Biden conspired with the rest of the Democrats to expand immigration for the purpose of bringing in people who were in need of "free stuff". They realized that since the Democrat party was the party of "free stuff" that these new citizens would vote Democrat. Since then Democrats have continued this conspiracy to destroy our country in the name of acquiring all the power and that is why we import turds from the turd world. We couldn't import educated people from Eastern Europe and expect them to become Democrats because... well because they are educated and from Eastern Europe and would most likely have too many brain cells to become Democrats. So we must import/immigrate people who need "free stuff" and who don't have too many brain cells and where else do you expect to find them??? It is in fact pure genius on the part of the Democrats. Well, pure genius if you ignore the unfortunate side effect that it will destroy our country and the lives of our citizens. But Ms Pelosi, Ms Feinstein, Mr Schummer and others on the left are making millions and controlling lives so for them it is pure genius don'tcha know.