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Interesting Piece: The Myth of a Stagnant Middle Class

By JLP | January 24, 2013

From today’s WSJ is The Myth of a Stagnant Middle Class by Donald Boudreaux and Mark Perry lays out three reasons why they think the middle class is doing better than we are being told:

It is true enough that, when adjusted for inflation using the Consumer Price Index, the average hourly wage of nonsupervisory workers in America has remained about the same. But not just for three decades. The average hourly wage in real dollars has remained largely unchanged from at least 1964—when the Bureau of Labor Statistics (BLS) started reporting it.

First, the CPI overestimates inflation by underestimating the value of improvements in product quality and variety. Would you prefer 1980 medical care at 1980 prices, or 2013 care at 2013 prices? Most of us wouldn’t hesitate to choose the latter.

Second, this wage figure ignores the rise over the past few decades in the portion of worker pay taken as (nontaxable) fringe benefits. This is no small matter—health benefits, pensions, paid leave and the rest now amount to an average of almost 31% of total compensation for all civilian workers according to the BLS.

Third and most important, the average hourly wage is held down by the great increase of women and immigrants into the workforce over the past three decades. Precisely because the U.S. economy was flexible and strong, it created millions of jobs for the influx of many often lesser-skilled workers who sought employment during these years.

Since almost all lesser-skilled workers entering the workforce in any given year are paid wages lower than the average, the measured statistic, “average hourly wage,” remained stagnant over the years—even while the real wages of actual flesh-and-blood workers employed in any given year rose over time as they gained more experience and skills.

I have never felt the CPI overstates inflation. In fact, it seems like the index keeps going through adjustments to hide inflation. And, although prices of things like computers have been coming down, those cheaper prices are for inferior products. I know this because I purchased a laptop a couple of years ago. I went through and upgraded the components and the final price was about 3X the price of a “cheaper” computer (the kind you would buy off the shelf at Best Buy).

Honestly, I think if wages are falling, it’s due to globalization.

Topics: Economics, Politics | 7 Comments »


7 Responses to “Interesting Piece: The Myth of a Stagnant Middle Class”

  1. mercyn Says:
    January 24th, 2013 at 11:15 am

    Housing eats up a large portion of the average American’s income, unless one lives in small cities or rural areas. The article (I read the whole article) does not address the issue.

  2. Sam Says:
    January 24th, 2013 at 6:45 pm

    This article from Zero Hedge argues the exact opposite from the WSJ article – namely that inflation is seriously under counted by the Gov’t to keep the federal deficit for Social Security from exploding.

    http://www.zerohedge.com/news/2013-01-23/high-price-understated-inflation

  3. BG Says:
    January 24th, 2013 at 9:38 pm

    Whether you believe the inflation numbers or not, compare the average income to the top 1% — takes inflation right out of the equation.

  4. Greg Says:
    January 25th, 2013 at 9:35 pm

    Inflation is way up, from what I can see….
    Just in food prices, the reduction in sizes
    is out of control, I think.

  5. Miguel Says:
    January 26th, 2013 at 8:29 am

    There really isn’t a “truth” when it comes to the stagnant middle class question. Simply reaching agreement on a definition of “middle class” is nearly impossible in a society in which 99.9% of the population self-identifies as middle class. And statistically, what would have been middle class in 1970 probably does not equate to the same social class or life style expectations as what would be statistically middle class today. The topic is far too broad to debate, or stated differently, it could be debated endlessly.

    What can be said, however, at least anecdotally, is that a significant portion, perhaps even the majority of the working population, feel that they cannot achieve basic financial stability and adequately plan for retirement (absent the fortunate few with a generous federally-funded defined benefit plan).

    Now, from I see among family and friends is a lot of bad behavior – people living well beyond their means, engaging in reckless fiscal behavior, and then blaming society for their ills. At times, it feels like I’m in one of those movies where the population has been infected by some virus that makes everybody go mad. At some point, the protagonist begins to wonder – Is it me, or has everyone gone nuts?

    I find myself asking questions (that I would like to ask some of the “middle class” people I know, such as “Does a 10 year old really need an iPhone and a matching dresses for herself and her dolls, when you just borrowed from your 401K to play the bills… again?” Alas, if I were to say what I think most of the time, I would have no friends, nor family left on speaking terms. As a member of the 1%, I’m not allowed to criticize, least I be labeled an unsympathetic expletive (never mind that I started out less than middle class).

    I know there are real issues of rising housing costs, depressed wages, reduced safety nets, etc. I’m not saying there aren’t some structural issues working against people. But, I also don’t see many people adapting very well or using common sense either.

    I rather like the expression: “When life gives you lemons, make lemonade.” Don’t wait for O’gubment to save you.

  6. BG Says:
    January 27th, 2013 at 9:31 am

    Miguel) You should ask them directly, instead of posting your one-sided (your side) anecdote here. As for someone taking loans from a 401k, it is their money, they earned it and saved it — it is not O’gubment (other taxpayers) money.

    Anyhow, if one wants a pretty much guaranteed ticket out of poverty: DO NOT HAVE KIDS, find a spouse with the same beliefs, pool your resources (both work), and watch as you leave your friends/family in the fiscal dust.

    Best predictor of someone staying poor: teenage pregnancy. A child having a child is a massive drain on all families involved (plus a drain on taxpayers for the inevitable welfare).

  7. Miguel Says:
    January 27th, 2013 at 1:00 pm

    The “waiting for O’gubment” statement was a general comment, not specific to the fellow taking money from his 401K to purchase fancy gadgets and large screen TVs. Of course, when this fellow has no retirement savings, and is no longer able to work, well thats where the expectation that O’gubment will take care of it comes in, which now that I think about it, pretty much makes it my business to comment on.

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