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.