Commentary

Yes, a Rising Tide

This article appeared in TownHall.com on March 30, 2006.

A recent Washington Post editorial launched another “occasional series about inequality” with a misplaced question mark — “A Rising Tide?”

“In the 25 years from 1980 from 2004,” the editorial asserted, “the wages of typical workers fell slightly after accounting for inflation. So, too, did wages for the 50 percent of the workforce that earned less than the typical, or median, employee.”

As we learned from similar efforts in the past, such statistics tend to be patched together to fit a preconceived theme, with minimal regard for accuracy.

A previous Washington Post “occasional series about the changes roiling the middle of the American workforce” was launched in September 2004 with a three-page feature on “The Vanishing Middle-Class Job.” Readers were then warned to be alarmed because: “In 1967 nearly a quarter (22.3 percent) of households made between $35,000 and $49,999 in inflation-adjusted terms. But that share was down to 15 percent by 2003.”

However, a closer look at those same figures showed the percentage of households earning more than $50,000 was up to 44.1 percent in 2003 from only 24.9 percent in 1967. Too many people making too much money was a novel way to describe a crisis.

After such an embarrassing debut for their last “occasional series” on muddling middle income, you might think they’d be more careful this time. Apparently not.

This year’s inaugural editorial referred to a median wage — the point at which half earn more and half earn less. According to the Bureau of Labor Statistics (BLS), the “usual median earnings of full-time wage and salary workers” amounted to $262 a week in 1980 and $638 in 2004.

Translated into 2000 dollars, using the deflator for personal consumption, the median weekly wage rose to $589.40 in 2004 from $503.09 in 1980 — an increase of 17.2 percent. Real wages have always fallen when oil prices surged (such as 1981 and 1990), yet the real median wage for 2005 nonetheless remained higher than any previous year except 2004.

There were three recessions between 1980 and 2004, so comparing figures for the start and end of that period cannot show what happened when. The real median wage in 1991 was $510.68, for example, so the increase by 2004 was 15.4 percent, or 1.2 percent a year. That sounds OK to me, but nobody knows whether it was slow or fast. We can’t compare that 1.2 percent annual gain with the past because this data series began in 1979.

Because of major demographic changes, movements in the median wage do not necessarily describe what happened to “typical” workers over a decade or more. The median was mathematically diluted by the addition of millions of low-wage immigrants. Adding so many more people at the bottom of the income ladder redefined the midpoint (median). Yet it probably had no effect on those previously considered “typical” (middle-income) except to hold down their cost of fast food or home and lawn care.

Any measure of wages alone understates increases in living standards by excluding health and retirement benefits. The BLS index of real compensation includes benefits. It rose to 118.7 in 2004 from 89.5 in 1980 — a gain of 32.6 percent. Even total compensation excludes income from investments, including the statistically invisible returns inside IRA and 401(k) plans. All measures of earned income likewise exclude the underground cash economy, legal and illegal. And they exclude huge transfer payments, including the Earned Income Tax Credit and Social Security.

The broadest measure of living standards is what consumers spend. Real consumption per person rose from $14,816 in 1980 (in 2000 dollars) to $25,816 in 2004 — an unprecedented gain of 74.2 percent. Can anyone really believe that all those new superstores, malls and restaurants built since 1980 have been catering to just the richest 10 percent? Can anyone believe the top 10 percent really bought nearly all of those new houses, cars, computers and steaks? The whole idea that the America has experienced a 25-year stagnation in typical living standards is as fanciful as the phony statistics deployed to defend it.

President Kennedy was right, “A rising tide lifts all boats.” People still have to be willing to get in the boat and grab an oar. Those willing to work, learn and invest do much better inside an American boat during a rising tide than they would sitting in an egalitarian’s leaking boat, or boatless and treading water in some Franco-Euro stagnant pond.

Alan Reynolds is a senior fellow and a nationally syndicated columnist.