Stagnant Thinking II: The Price of Progress?

Stagnant Thinking II: The Price of Progress? May 14, 2009

Previous in Series: Introduction.

As I noted last time, the claim that real wages have been stagnant over the last several decades is a common place among certain groups. But is it true?

A look at the Census Bureau’s Historical Income Tables shows that the median income for individuals was more than 30% higher in real terms in 2007 than in 1974 (from $20,230 to $26,625 in 2007 dollars). Of course, the fact that real median income for society as a whole is up 30% over the last 35 years doesn’t mean that real median income was up that much for all groups within American society. Breaking down data based on race and sex, what one finds is that while real median income for women roughly doubled in the period between 1974 and 2007 (from $11,687 to $20,922 in 2007 dollars) and real median income for blacks increased by nearly fifty percent (from $14,338 to $21,888 in 2007 dollars) the real median income for White and Hispanic men was virtually the same in 2007 as in 1974 (from $33,575 to $35,141 in 2007 dollars for Whites, $24,432 to $24,451 in 2007 dollars for Hispanics). No doubt if one was to focus on even more specific subcategories, one could find groups that where real median wages were doing even better or even worse than the above, but of course as a simply matter of statistics any subgroup you found doing worse would have to be more than balanced by other groups doing better (since real median wages overall are up 30+%).

Based on the Census data, then, one would have to conclude that the last 35 years have been a time of great progress if you were black or were a woman, but were not so great for White males. Indeed, one might be tempted to conclude that it is precisely because blacks and women have seen such progress over the last 35 years that the real median income of White men has remained flat. That is, until the late 1960s both blacks and women were subject to a significant amount of discrimination in the job market, both legally and socially. This discrimination meant that the wages of both blacks and women were significantly lower than what they should have been given their productivity. Since the late 1960s, however, this sort of discrimination has waned considerably (though it obviously hasn’t gone away completely), with the result that the real wages of blacks and women have risen to more closely reflect their true value to employers. The flip side of this, however, is that White males now face more competition from blacks and women, which serves to suppress the growth in their own wages.

Whether one views this trend as a good thing or not will, of course, depend on your values. A White supremacist, for example, would view the above trends with horror. Likewise, someone who tended to frown on women working outside the home might be inclined to focus on the lower growth in real wages for men, and discount the vast improvements for women as being relatively unimportant. I suspect, though, that most people would view flat wages for White men as being an acceptable price to pay for the increases in the incomes of blacks and women over the last 35 years, and so to the extent that the two trends are related, would be inclined to view the overall trend as being positive.

As it happens, I don’t think that the above is anywhere near the whole story when it comes to the issue of wage stagnation. That is, I think that the lot even of White men has improved a lot more than what simply looking at the Census numbers might lead you to believe, and in future posts I hope to explain some of my reasons for thinking this. Nevertheless, even if the above numbers were the whole story, the relatively flat wages of White males would be worth it, in my view, as the price of progress achieved over the last 35 years by historically discriminated against groups.

One final note. You might wonder: what about Hispanics? Clearly they weren’t the beneficiaries of discriminatory policies against minorities, so why should their wages be flat? My guess is that this is just a matter of statistical illusion. If you compare the median age of the children of the Octomom today versus a year ago, you will find that it has dropped considerably. But that obviously doesn’t mean that any of her children are younger today than they were a year ago. If you add a bunch of people at the bottom of an income distribution, it is going to exert a downward pressure on median income even if the income of each individual keeps improving. Given the large increase in Hispanic immigration over the last 35 years (most of whom are below the median in terms of income) it’s not surprising that real median income for the group would not have improved that much.

Next in Series: Where to Begin

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  • Interesting and important point. (I’m excited to keep reading this series.)

    BTW, may one assume that you’ll be looking at a similar breakdown by education level at some point?

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  • “…the claim that real wages have been stagnant over the last several decades is a common place among certain groups.”

    No, actually, the Bob Herbert piece you cite is the only place I’ve seen this claim, and I’m an economist. What I see much more often is the claim that wages have stagnated over the past decade. I’d like to see you argue that’s not true.

    I would also point out that your findings do not at all contradict his claim. Herbert speaks of the *average* income of the bottom 90% of the population, while you discuss only the median income. In order for the former to decrease while the latter is increasing, we would need the incomes of the poorest (e.g. the poorest 20%) to fall substantially even while the median income is rising. And that is exactly what has occurred due to a welfare reform that sharply decreased the income floor and increased inequality of wage earnings due to globalization and the eroding of the minimum wage.

    You can check this by looking at other percentiles than the median, say the 10th percentile or the 20th percentile.. But for now, don’t suggest that you have proved Herbert a liar (or even misleading) when you have done no such thing.

    In any case, I really appreciate your efforts to go as directly as possible to the numbers and take a fresh look. And the race/gender story you point out is indeed interesting and is fairly well-understood by economists. (I could point you to some papers if you’re interested.)

  • No, actually, the Bob Herbert piece you cite is the only place I’ve seen this claim, and I’m an economist.

    I’m guessing you must be new to the blog, as several of the contributors here have made versions of the ‘stagnant since the seventies’ claim repeatedly.

    What I see much more often is the claim that wages have stagnated over the past decade. I’d like to see you argue that’s not true.

    I plan on addressing this in a future post.

  • blackadderiv

    the race/gender story you point out is indeed interesting and is fairly well-understood by economists. (I could point you to some papers if you’re interested.)

    That would be helpful, thanks.

    On the issue of median vs. average, if you look at the data for mean wages over the last 35 years the situation actually becomes more rosy, not less so. I guarantee you that had I used the numbers for average wages rather than median wages, I would have been accused of misleading people.

    Also, while I seem to have misplaced the link to the breakdown of wages by quintile, if you look at household income, the upper bound of the bottom quintile has increased by about 10% since 1973 (households are people, of course, but my recollection is that the household data understates the improvement relative to the data for individuals).

  • On the issue of median vs. average, if you look at the data for mean wages over the last 35 years the situation actually becomes more rosy, not less so.

    Hold on! The total average (which is just GDP/capita) is much different from the average of the lower 90%, which is what Herbert cited. Given the sharply increasing inequality at the top end in the past 20 years, this makes a big difference.

    if you look at household income, the upper bound of the bottom quintile has increased by about 10% since 1973

    Ok, I see. Thanks for providing that. So, in order for Herbert’s statement to be correct, it would need to be the case that, say, the 10% percentile is substantially decreased over that time.. So I’m beginning to understand your suspicion of the claim. Do you know where his source got the numbers specifically?

  • blackadderiv

    Tim,

    My general experience is that you rarely find examples of out and out falsehoods when people cite statistics, at least once you get to the level of something like the New York Times (they do still employ fact checkers, right?) More often what you find is a statistic which is technically true, but which provides a misleading picture. I don’t know what the Herbert statistic is based on, but I suspect that it falls into this latter camp.

  • Fair enough. But while I admire your efforts to go directly to the most straightforward numbers to see for yourself, I would insist that the most straightforward numbers can be just as misleading as those that have been manipulated in different ways. You yourself explain how age demographics and composition effects most likely distort the numbers in the case of Hispanics, and of course similar things are going on in every category–changes in education levels, household sizes, workforce participation, etc., etc.

    I would recommend citing serious, peer-reviewed economics work as a more compelling alternative. Of course, you may find well-regarded economists on both sides of the issue, but that’s just the nature of pursuing knowledge. Appealing to the “raw facts” is not going to settle anything.

    Thinking that you can sidestep sophisticated economic analysis and go directly to the facts is a little like the armchair philosopher who says, “I don’t need to read those ancient Greeks, or those Scholastics, or least of all those contemporary philosophers–it’s really just common sense.” I assume you wouldn’t agree?

  • blackadderiv

    That’s a fair point. I don’t think that anything I plan on saying in these posts is really original to me. You can find most all of it in the academic literature. My experience, though, has been that when I do link to scholarly treatments of a subject, people mainly just ignore it.

  • Yeah, I can see what you mean. I guess the trick is to have some easily understandable statistic that conveys the story. And then ideally you have the academic stuff to back it up and show that it’s not misleading?

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