TCS Daily


Blame the Republithugs? Or Women?

By Tim Worstall - January 13, 2006 12:00 AM

You may have seen the idea being passed around recently that all this wonderful growth we're having in GDP and productivity is bypassing the common man, that the bosses are getting all the gains. It's put forward with such horror it's almost as if the capitalists were keeping all the babes for themselves and palming off the average guy with the surgically enhanced lap dancers, the ones where the operation didn't quite take.

As Jon Henke pointed out in TCS recently, it's very tough to argue with a straight face that real wages are actually falling. Possible, but a difficult task, for one has to cherry pick the numbers to get the "just so" answer.

I've been puzzling over a similar claim for some time now, over a slightly different measure of your average working man's income. You might have seen it (if you ever sully your mind by reading them) over at the EPI in December. Or at Sirotablog, pointing to a USA Today story, or CBS News which reran something from the Christian Science Monitor, or if you prefer your information from the economically literate, Brad DeLong or Econbrowser.

To stop you having to wade through page after page of economic statistics, here's the main point. The Bureau of Labor Statistics ( which is that part of Uncle Sam that keeps the numbers on such things) releases figures for average hourly wages. These do indeed show that average hourly wages have been at best stagnant over recent years. Case proven you might think, that the rich get richer and the poor get....

Well, no. Unfortunately for our various class warriors this isn't actually true, for reasons that those who read about the gender gap will be able to appreciate. First, the basic smell test. Have a look at the second graph here at Macroblog. Using this same measure, this same set of statistics from the BLS we seem to find that real (i.e. adjusted for inflation, and there are several ways to do that) average hourly earnings are unchanged (virtually) since 1964.

Hunh? We're really expected to believe that Joe Sick Pack has made no headway at all in 41 years? That an hour of labor then buys the same as an hour of labor now? That the world's economic powerhouse of the past generation has not been able to raise the living standards of the average worker at all? No, clearly, that isn't true, it simply doesn't pass any of the normal common sense tests. So the question isn't now whether it is all GW Bush's fault for the seeming stagnation of the past few years; it's why is this figure telling us something that we know, in our heart of hearts, to be ridiculous? Just to make it clear that it's not the evil Republithugs that have caused this it might be worth noting that there has been the occasional Democratic President over this time period and they didn't do any better by this measure either.

What's actually happened is that the underlying structure of work has changed making this particular measure unreliable. So unreliable, in fact, that the BLS is phasing it out in favor of something that actually measures something useful. Economist Alan Reynolds explains some of it at Townhall:

"Average earnings" is an arithmetic average -- a mean not a median -- and it includes part-time jobs.

...

Since 1973, as the BLS explains, there have been "persistent long-term increases in the proportion of part-time workers in retail trade, and many of the service industries have reduced average workweeks in these industries." Millions of previously nonworking spouses and students sought and found part-time work, which diluted average earnings, particularly on a weekly basis. Substituting a low-wage job for an unpaid job makes average earnings appear lower, yet results in higher family incomes. Adding millions of low-skilled immigrants in recent years has likewise diluted average earnings without affecting typical earnings.

As I pointed out in an earlier article, (and while I was using UK figures I'll only use those relevant to the US now) there are several pay gaps. There is the gender gap, whereby women get paid less than men. When this is for the same job we rightly decry it but we all also know that choices made, discrimination against women with children and so on lead to their lower wages. What has been one of the defining things of the US labor market over the past 40 odd years? Yes, that's right, the entry of armies of women into it. Given the way in which the average is calculated, as a mean not a median, this is bound to lower the headline figure.

There is also, as we noted, a pay gap between those who work part-time and those who work full. Part-timers not only get less in total, they tend to get less per hour worked. And yes, the past 40 years have seen a huge expansion of part-time workers. Thus, if we simply average pay received across hours worked, we will inevitably see a reduction in pay per hour worked.

Whether these gaps should exist is an argument for another day but it's indisputable that they do exist, both for women and for part-timers.

Which leaves us with something of a conundrum. Outside of the more reactionary circles it is usually considered a good thing that women now have the choice to enter the workforce, are allowed to partake of that great joy that arises in the breast of anyone clocking on for a productive shift with fellow smiling stakhonovites. Similarly, the freedom that comes from being able to choose the hours, perhaps part-time, perhaps full, is also generally welcomed as an advance in human freedoms, an increase in utility as the economists call it, greater choice, simply a good thing in and of itself.

Indeed, on many a day you will find the various leftists linked in the second paragraph insist that we need more of such things, more women enjoying the fruits (and independence) of their labor, more availability of part-time work and job sharing. More freedom to choose if that phrase has not yet been co-opted to mean something different.

So why they decry the obvious and forseeable effect on average wages as they are calculated is something of a mystery.

Myself, I'd say there's politics involved somewhere. There usually is when people start to ignore the facts.

The author is a TCS contributing writer. He is editor of 2005 Blogged.

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2 Comments

The same wage buys more because of technology and without the Fed would be lots more.
The same wage now buys more stuff because of technology. It buys lots of more of semi-regulated manufactured products like electronics. It buys more automobile for the money. It also buys more house and more fuel.

It is services that are sensitive to inflation (caused entirely by the Federal Reserve) that kill the little guy. Education, medical care, cable TV, etc are keeping up with the money supply.

No Wage Alternative Measurement
How about those of us in the entrepreneurial field taking no wage and betting on the capital gain?

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