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It's only one data point, but...
Employers are not only hiring more, but they are paying more, too. The average hourly earnings for workers rose 4 percent in March compared with those a year earlier, to $17.22 an hour. The gains in weekly earnings were even stronger, up 4.4 percent, to $583.67.
Here is the story. I believe that the much-heralded "real wage stagnation" consists of three major factors: a) potential real wage increases being absorbed by rising health care premiums in the broader employment package, b) unmeasured improvements in the quality of economic life, the internet being one example, and c) an unusually long lag between rising productivity and real wage gains. I am increasingly of the belief that the third factor no longer operates.
Posted by Tyler Cowen on April 6, 2007 at 04:32 PM in Economics | Permalink
Comments
per item b, BLS calls that hedonics when it is (mis)calculating CPI.
Posted by: Martin at Apr 6, 2007 6:09:41 PM
I couldn't help notice that you quoted Thaddeus Ryan on your blog. Which Thaddeus Ryan are you quoting?
Are you quoting my brother, a recent masters student in Latin American Studies at the University of Florida?
If so, please be aware that he passed away on March 25, 2007.
Do you mind responding to let me know if my Thaddeus and your Thaddeus are the same guy?
My brother was 35, 6'6 1/2", brown hair, pale skin, thin.
Fay Ryan
813/891-1748
Posted by: Fay Ryan at Apr 6, 2007 6:10:47 PM
I don't get it, why would they pay any more than the minimum wage? ;-)
Posted by: Chris Meisenzahl at Apr 6, 2007 7:54:46 PM
Do you completely discount the possibility that 'real wage stagnation' could be a consequence of both the offshoring of high wage high value jobs on one direction and mass immigration in the other?
If so I would become an ex-MR reader, because such a position would entail a doctrinaire adherence to ideology at the expense of either fact or enquiry; a form of charlatanism.
Posted by: Martin at Apr 7, 2007 2:43:28 AM
thanks for your informations.very good informations..i will read all the time this blog.again thanks...
Posted by: evden eve nakliyat at Apr 7, 2007 4:36:38 AM
"Do you completely discount the possibility that 'real wage stagnation' could be a consequence of both the offshoring of high wage high value jobs on one direction and mass immigration in the other?"
If he's smart he does. And Tyler is smart.
"If so I would become an ex-MR reader, because such a position would entail a doctrinaire adherence to ideology at the expense of either fact or enquiry; a form of charlatanism."
By that logic, believing the Earth to be round when it "looks" flat is adherence to ideology.
It looks like you'll become an ex-MT reader because you'd rather engage in confirmation bias than know economics. We'll miss you.
Posted by: Keith at Apr 7, 2007 5:00:39 AM
Offshoring is very small in significance, at least so far. I've blogged plenty on the real wage effects of immigration in the past. Even if you buy into the anti-immigration story, it would only explain wage stagnation at the bottom of the distribution, not for the median. I don't *dismiss* those factors, but I believe my list of three is the best current list we have.
Posted by: Tyler Cowen at Apr 7, 2007 6:14:00 AM
a) Part of rising health care premiums is being offset by a decrease in retirement benefits.
b) There were unmeasured improvements in the quality of economic life in the period or rising wages also.
c) The disconect between rising productivity and real wage gains can be associated in time with tight fed policy, lower top tax rates, budget and trade deficits, baby boomers in the work force, increases in trade, increases immigration and the increases in the number and skill level of women in the work force. The last four has the effect of increasing the supply of labor.
Posted by: joan at Apr 7, 2007 10:28:42 AM
How do unmeasured improvements in the quality of life explain real wage stagnation? Sure, if we measured those improvements, we might conclude that wage earners were getting more bang for their buck, but this certainly didn't factor into either A) workers' wage demands, or B) companies' wage decisions. So the riddle of real wage stagnation must be due to the other two factors...
Posted by: Mr. Noah at Apr 7, 2007 11:17:14 AM
I wish they'd report the median, rather than the "average" income. Because I earn $12.90 an hour and it makes me feel bad to be so far below the average when I have a B.S. in math.
Posted by: Noumenon at Apr 7, 2007 12:51:24 PM
Mr. Noah,
I believe the issue is unmeasured quality gains in products in the CPI, thus overstating inflation, thus understating "real" income and "real" GDP after nominal gains are adjusted for headline inflation.
If in 1980 I made a doctor visit and he examined me and said take two aspirin and call me in the morning, while his 2007 counterpart, thanks to radical improvements in the quantity and quality of medicine available, could not only tell me what is wrong, but prescribe medication or helpful curative advice that actually works, and the 2007 package cost me radically more than the 1980 doc's advice/prescription package, is this due to: A) inflation B) measured quality gains C) unmeasured quality gains D) a lucky guess on my 2007 doctor's part, or E) all of the above?
From roughly 1929 to the 70's the big gains in standard of living (in the US and other developed countries) were quantitative gains, while qualitative gains dominate since then, increasingly so. There are only so many washers and dryers a household needs for example, while it is absurd to think the government can accurately tell how much more "objective value" a 2007 internet connected PC has vs its 1997 counterpart.
In other words, as services become more and more a part of our GDP than manufactured goods, and as the line blurs between them (is PC connected to a cable modem a product or service? How about a heart valve replacement? How about a car on warranty?), quality becomes more important in GDP than quantity, and it is radically undermeasured. This is an ongoing and seemingly accelerating process, more and more making a mockery of government GDP and income numbers, even though we credulously accept those numbers for lack of something better.
Posted by: happyjuggler0 at Apr 7, 2007 2:41:53 PM
Here's how immigration causes wage stagnation at the median:
1) Low wage and low skilled immigrants pay little in taxes and do not buy medical insurance.
2) The low skilled immigrants use medical services.
3) Cost shifting of their expenses drive medical cost of higher income workers.
4) The shifted medical costs raise taxes and lower raises.
As long as we have a welfare state the influx of lower skilled and lower cognitive ability immigrants is going to increase the burden on smarter and higher paid workers. After all, someone has to pay for the medical care, education, policing, kids taken from parents, and other costs of a lower performing group.
Posted by: Randall Parker at Apr 7, 2007 3:03:09 PM
Further proof that sitting in a faculty office reading statistics does not allow one a good picture of the real world.
For many Americans pensions are deteriorating or evaporating, health coverage is deteriorating, job security is deteriorating, basic family commodities are inflating (milk and gasoline), etc. and these new jobs are low value jobs in big box stores. Immigrants (mostly illegals) take a large percentage of new construction jobs (estimate from 30% - 60%).
But on average, things are swell.
Even the Decider-in-Chief recognizes the growth in income eqaulity (or at least Karl Rove told him so).
Posted by: save_the_rustbelt at Apr 7, 2007 3:33:34 PM
happyjuggler0
The quality of medical care took a giant leap forward between 1929 and 1980 with the introduction of antibiotics during WWII. Most of the increase in life expectancy since 1929 happened before 1980. If the quality of medical care were included, the difference between wage growth in the post WWII period and the last 30 years would be even greater.
Posted by: joan at Apr 7, 2007 3:36:58 PM
Joan,
I agree that antibiotics was a huge plus. I believe that one of the big increases in lifespan though was much improved sanitation and other public health measures, most of which occurred before WWII actually.
One final note, it is a huge mistake to think that health spending is about lifespan nowadays, there really isn't much of a correlation. The big value added in additional health spending, when there is indeed value added, is quality of life issues.
As a long time allergy sufferer I can tell you that there have been huge improvements over the past 25-30 years. Similarly you can actually take effective cold medicine now that doesn't knock you out.
Ulcers were formerly treated with the equivalent of stone age medicine, now we can both effectively treat the painful symptoms and also eliminate the root cause.
A huge amount of surgery today is done with "scopes", short for various -scopy procedures that simply didn't exist before the 80's. With scopes they can make a tiny incision instead of a major gaping cut in you, and you can become an outpatient the same day of surgery. Previously you had lots of inpatient post-op care. Scopes also make possible surgeries that previously were simply undoable. This is possible due to the small size of the surgical instruments.
Need I mention Viagra? Wheelchair technology? Prosthetics?
There has simply been a huge virtually unremarked upon medical revolution since circa 1980, and this has been in medical devices, surgical ability, drugs, and general all around greater medical knowledge which allows previously untreatable non-lifethreatening ailments to be treated and allows people to live normal lives, and to live healthy active lives foremerly associated with only the young, that previously would've left them with limited mobility.
Personally I think we're just getting started as well. The point though is that this progress is accelerated compared to the previous ~30 year period, and it may continue for another 30 years or so.
All of this costs money of course, and is why all developed countries (not just the US) have had increasing costs in nominal currency terms for total healthcare. If one only uses the notion that lifesaving (whatever that means, we all die eventually) spending is the proper metric then one is missing most of the picture. However health quality doesn't lend itself to easy graphs or numbers the way life expectancy does, so "we" tend to use the same old inadequate metric.
Posted by: happyjuggler0 at Apr 7, 2007 5:55:45 PM
I sometimes wonder if the appearance of "real wage stagnation" has been caused largely by the aging of the baby-boomers. The boomers are in their forties or older now, and I've observed that real wages of most people stagnate once they've passed 40, since by that age they've typically risen about as high as they're going to go. Just a thought.
Posted by: jp at Apr 7, 2007 8:11:18 PM
Hey Randall: get your robots to kill the immigrants. problem solved.
Posted by: kevin at Apr 7, 2007 8:19:00 PM
They're a hell of a lot better off than when my mom's rustbelt company laid off 70K in a 3-4 week period. My mom's wages were frozen for 3 years.
That was over 1/2 their workforce.
I've never had a pension and only 1 company paid for my insurance. At that time, anyone making $30K and under (late 80s) got their insurance paid for. Then 10/87 market crash happened and it was over.
No one's forcing them to stay in the rustbelt.
Posted by: Sandy P at Apr 8, 2007 1:16:25 AM
happyjuggler0 -- just last week I had a Dr. tell me to take two aspirins and call a specialists -- some improvement from your 1980 experience.
Posted by: spencer at Apr 8, 2007 8:35:26 AM
happyjuggler0,
But what about real estate costs? People are paying a larger percentage of their incomes for housing and a larger percentage for medical care. As the population size increases I expect land costs to continue to rise. The use of land for biomass energy is having a similar effect. We can't easily make more land.
Posted by: Randall Parker at Apr 8, 2007 12:22:44 PM
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Fay -
I knew your bother, Thad. I was his roommate. He was a wild guy back then, but I knew he had good in his heart. It made me sad to know that he passed away a few years ago. I think about him every so often ... that's how i ended up here.
Take care,
- greg
Posted by: Greg at Oct 23, 2008 5:28:34 PM
Posted by: masinn at Dec 18, 2008 11:59:05 PM
