The Real "Truth About the Economy:" Have Wages Stagnated?

Prof. Don Boudreaux responds to "The Truth About the Economy" (http://lrnlbty.co/z0ACuH), a recent video featuring former Labor Secretary Robert Reich. In the video, one of Reich's key points is that most people's wages have barely increased since 1980. However, when Reich's numbers are examined in greater detail, his claim does not hold up. If you care about this issue, there are three things to consider:

1. How inflation is calculated
2. Benefits workers receive other than wages
3. The distinction between statistics and individuals

Adjusting for inflation, especially over long periods of time, is as much an art as it is a science. In an attempt to measure inflation, economists have developed several indexes. All of these indexes are considered legitimate, but all of them yield different results. In "The Truth About the Economy" video, Robert Reich uses the consumer price index (CPI) to calculate the average hourly wage, and he finds that wages haven't risen much over the past 30 years. However, when using other methods of adjusting for inflation, which are no less respected, the average hourly wage rate rises as much at 18% over the same 30 year period.

Index differences aside, everyone agrees that all forms of compensation must be considered to accurately calculate worker's compensation. This includes not only wages and salaries, but also benefits like health insurance, retirement benefits, vacation days, sick pay, and more. It's worth noting that fringe benefits have become a larger share of income over the past 30 years. According to Don Boudreaux's calculations, which include fringe benefits, average hourly wages have increased up to 26% over the past 30 years.

Lastly, and most importantly, Robert Reich confuses statistical categories with real people. When Reich says that, since 1980, most people's wages have barely increased, he gives the impression that most people have enjoyed no economic gains over the past three decades. What he means is that, adjusting for inflation, average wages have not increased. The real flesh and blood people within these statistical categories have actually experienced increased compensation. Some workers are gaining skills, others are retiring, and others are joining the workforce for the first time. Especially noteworthy is the increasing rate at which women and immigrants have entered the workforce in the past 30 years.

To Boudreaux, Reich is right to claim that a strong economy needs a strong middle class. However, taxing the rich, as Reich suggests, is not the path to a strong middle class. The path to a strong economy and a strong middle class requires the hard work and great entrepreneurial ideas of individual people acting in a free market.

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Category:

Education

Tags:

• Robert Reich
• Truth about the Economy
• tax
• rich
• economy
• wage
• stagnation
• middle class
• free market
• video
• learn liberty
• liberty
• freedom
• educational

[KittenKoder]

Excellent break down.

[rooftopeagle]

@jerrylittlemars Oh I get what he is saying, I'm not disputing his facts, but outside factors make what he is saying worthless.

An example of what I am saying is:

Wages are up 10%? great, but the value of those wages is down 60%!

Granted I just pulled these numbers out of my ass but it gets the point I am making across. Sure wages have increased but those wages are worth less overall.

[JTrizzleFizzle]

I noticed that Reich used the period between 1980-2011, which includes the housing collapse, the bailout of Wall St, and the ongoing recession. This video, on the other hand, only uses data between 1976 and 2006, which doesn't incorporate the recession, nor the subsequent bailout.

I'm not saying that either point is right or wrong, but next time you challenge someone's data, be sure to use the same time frame.

[cosmopolite66]

1970 and 2008

[cosmopolite66]

Does Prof. Don Boudreaux take under consideration the debt American family had 1700s and in 2008?

[cosmopolite66]

@theredscourge Hwy your personal experience would be illustrative for the economical trends in US?

[trueconservatie33]

@IlluminaZero that's because our dollar lost of most of it's purchasing power thanks to federal reserve, and a lot of deductions and loopholes didn't exist today. China wasn't an economic power then.

[theredscourge]

@IlluminaZero I dropped out of University in my second year and have been in the work force since. I watch my expenses, I don't waste money on frivolous things, I'm easily paying my rent, I live alone, and I'm banking about 25% of my salary. The majority of my savings go into a self directed investment account. When I get a better job and my wage goes up, I'll divert much of it into a pension plan.

My wage is low relative to the field I am in, but it's plenty for my current needs.

[winmine0327]

yeah but if the baby died then the average would shoot up

[IlluminaZero]

@DigitalAmmunition Individuating these debates is never constructive. Your personal example could only logically be used to deny a universal statement (which I did not make.) Neither our academic education nor our personal earnings are relevant to historical economic trends.

Was my statement overly broad? Probably. But I'm not trying to write anything comprehensive, especially with 500 characters.