Mr. McKinney:
As it happened, I saw it. New report By Oren Kass It was released yesterday by American Compass. Although he has studied it carefully thus far, a simplification reveals countless reasons for doubting his conclusions. Only one fact warns me that his analysis is seriously flawed.
After adjusting for inflation over the half-century from 1972 to 2022, Oren says, “[t]Average hourly wages for production and non-supervisory workers rose 1 percent. This claim is false, outlandish. Digging in His data Using the data shown, Oren shows that he has reached this conclusion This graph of the Bureau of Labor Statistics. (You should set the first year to 1964.) Based on these data, this salary in 2022 appears to be slightly higher than it was in 1972. But this appearance is completely misleading.
First, looking at this figure and considering the price, Note that 1972 was the year in which wages reached their highest level before reaching their lowest point in June 1972. When Oren compared December 2022 wages to June 1995 wages, we found that 2022 wages were 25 percent higher than 1995 wages. A 25-percent raise is, of course, a much smaller prison term than a 1-percent raise. Oren doesn’t notice that these data show a 27-year increase in wages from 1995 to 2022. When it involves China’s entry into the World Trade Organization – “Wow, that’s terrible!” He forbade what he said. There is no doubt that Oren wants to inspire his readers.
Second, these data should not be taken at face value for changes in average real production pay and non-supervisory workers.
Oren himself reports that the wages in the data he uses are adjusted for inflation using the Consumer Price Index, but the CPI An adjustment that significantly increases inflation. A more accurate inflation adjustment than the CPI is the Personal Consumer Expenditure Price Index (PCE). The PCE, for example, frequently updates the weights attached to different items in the basket of items used to calculate costs more frequently than the CPI. Adjusting for inflation using PCE instead of CPI, economist Michael Stryn confirmed in 2020.
[o]Wages for ordinary workers in the last three decades [i.e., production and nonsupervisory employees] Using the CPI, it grew by 20 percent. And using PCE — the optimal measure of inflation — it gets a third of the wage increase.
In the year The 33 percent increase in real wages for workers between 1990 and 2019 saps rather than adds credibility to Oren’s story.
But the news is better than reported by Strain. Here Phil Gramm, with Robert Ekelund (my PhD thesis advisor) and John Early writing in 2022:
If an inflation adjustment for manufacturing and non-supervisory workers included both the chain (CPI) and more accurate adjustments for substitution bias and new and improved products, real average hourly earnings would have increased 74.0 percent over the past 50 years. [1967-2017] than the official figure of 8.7 percent.**
Because the data source Oren used shows that hourly wages in 1967 were about ten percent higher than in 1995, we can say that over the past 27 years—since 1995—real hourly wages for production and nonsupervisory workers have risen. By about 92 percent. This actual wage increase is unequivocally impressive and greatly undermines Oren’s story of middle-class woes.
Here’s one more problem with the real wage figure Oren uses: It does not include many employer-paid benefits.According to Gramm, Ekelund, and Early, in 2017, compared to 1967, “base wages and salaries will increase by 25 percent in compensation.” If we add these benefits to wages (as we should), the increase in real income for production and non-supervisory workers over the past few decades is roughly equal. More Amazing.
There are additional reasons why Oren’s claim that average workers’ wages have increased by one percent over the past half century is laughable. Perhaps in the next letter I will detail some of these other reasons. But the above is enough to cast serious doubt on the credibility of Oren Cass’s factual claims—and therefore on his policy recommendations.
best regard
Donald J. Boudreaux
Professor of Economics
And
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
* Michael R. Strain The American Dream Is Not Dead (But Public Opinion May Kill It) (West Conshohocken, PA: Templeton Press, 2020) p. 45
** Phil Gramm, Robert Ekelund and John First; The Myth of American Inequality (Lanham, MD: Rowman & Littlefield, 2022), p. 84.
