The myth of declining wages

Steven Chapman takes on Senator Obama's favorite mis-measure of the American economy: wages.

[Obama] makes a habit of claiming that "wages are shrinking," working families have lost ground, and the country desperately needs his "Rescue Plan for the Middle Class." His economic program rests on the unshakable conviction that everyone except the wealthy is doing worse and worse all the time. If elected, he will find sympathetic ears among Democrats in Congress, where never is heard an encouraging word.

In the midst of alarming headlines, it's easy to persuade people that things are worse than they used to be. The only problem is that aside from the transitory effects of the current turmoil, they aren't.

So like most politicians, Obama predicates his economic plan on a diet of fear that overlooks the ubiquitous economic progress of the last 25 years. He should know better. After all he's the candidate of hope.

The mistake made by the School of Gloom is looking only at wages, narrowly defined. According to the Bureau of Labor Statistics, average hourly earnings of production and nonsupervisory workers, adjusted for inflation, fell by 4 percent between 1975 and 2005. But those figures deceive because they omit fringe benefits like health insurance, pensions and paid leave, which make up a bigger share of total compensation than before. The numbers also rely on a mismeasure of inflation.

When those flaws are corrected, a very different trend leaps off the page. Median wages, says Fitzgerald, rose 28 percent between 1975 and 2005. Nor were the gains restricted to Bill Gates and Hannah Montana: Significant gains occurred in the middle as well.

The same pattern holds for households. The figures that suggest families are struggling to stay even overlook some types of income, and they don't account for the fact that households have gotten smaller on average. After accounting for such things, Fitzgerald found that "inflation-adjusted median household income for most household types increased by roughly 44 percent to 62 percent from 1976 to 2006."

None of this alters the fact that some people have done worse. Domestic and global competition, which raise living standards, also spell trouble for many companies and workers. A 50-year-old who loses a $30-an-hour job on the Chevy assembly line may never find anything comparable. But the steady, broad rise in living standards makes it clear that—at least until recent months—our economy consistently spawns more good jobs than it destroys.

Panel Discussion Video

I am proud to present the the October 21st Panel Discussion on the Federal Financial Bailout co-hosted by BHI video!

It is in .mov format, so Quicktime is required.

Moderated by Professor Haughton, the panel discusses different economic aspects of the current financial crisis, including who is to blame, details of the "Bailout Bill" and the roots of the crisis.

Panelists included:

Lynn E. Browne, Executive Vice President, Federal Reserve Bank of Boston
Kevin M. Cuff, Executive Director, Massachusetts Mortgage Bankers Association
Henry Kim, Associate Professor of Economics, Suffolk University
Jeffrey Miron, Senior Lecturer in Economics and Director of Undergraduate Studies, Harvard University

Running time is about 90 min.

BHI Releases Question 1 Study

On Tuesday BHI released a new study on the impacts that Question 1 would have on state residents. The majority of the current research on the effects of the elimination of the state personal income tax looks at an all or nothing case, with both sides arguing that the others vote would lead to lower economic outcomes.

The real world, especially politics, rarely operate with black or white but more often gray areas. Using this rational we examined cases where the Commonwealth could cut line-item spending to that of comparable states, thereby supplying the same amount of services of states such as New Hampshire, Colorado and Texas and increasing other taxes. This template could be used by the legislature to get though the income tax elimination, should voters support the ballot measure, and expand the economy.

The cuts in service to comparable states levels accounted for 70% of the lost income tax revenue. The remaining 30% is made up thought cost cuts (amending the state Prevailing Wage Law) and higher sales and property taxes.

These adjustments would enable the economy of Massachusetts to grow by 80k jobs and increase disposable income per household by $1,461.

Suffolk panel discussion on the federal financial bailout

BOSTON – (October 13, 2008) – To better explain the policy implications of the $700 billion bailout passed recently by Congress, the Department of Economics at Suffolk University will host a panel discussion, titled “The Current Economic Crisis: How Did We Get Here? Where Are We Headed?"

The discussion will take place on Tuesday, October 21 at 1 pm at the C. Walsh Theatre, Suffolk University, 55 Temple Street, Boston.

Confirmed panelists include:

Lynn E. Browne, Executive Vice President, Federal Reserve Bank of Boston
Kevin M. Cuff, Executive Director, Massachusetts Mortgage Bankers Association
Henry Kim, Associate Professor of Economics, Suffolk University
Jeffrey Miron, Senior Lecturer in Economics and Director of Undergraduate Studies, Harvard University

The hour-long discussion will be moderated by Jonathan Haughton, Professor of Economics, Suffolk University and will be followed by questions from the audience.

The themes to be addressed by the panel include:

•The institutional roots of the crisis: How much is Fannie Mae and Freddie Mac to blame? What about the Community Reinvestment Act? What about the concern over redlining?
•The economic roots of the crisis: What role did securitization play? Mark to market? The subprime lending craze? The housing bubble? Lack of oversight and regulation?
•The extent and depth of the crisis: Have we reached a bottom? When will we reach a bottom? What are the prospects for a long recession?
•The virtues (or evils) of the bailout: Did we need it? Will it do more harm than good?
•The outlook in the light of the current election season: What will the next administration do?

For more information contact:
Frank Conte, Director of Communications, Beacon Hill Institute, 617-573-8050
fconte@beaconhill.org.

Police Prevent Workers from Following the Law

This morning Massachusetts Water Resources Authority workers, trained as flaggers, attempted to complete their job of ensuring safety during routine maintenance around a manhole.

Unfortunately, the local police union felt that using their publicly-appointed enforcement to prevent the MWRA workers from completing their job, would also help their private interests. These MWRA workers were reporting to jobs which, thanks to D. Patrick's reform, previously paid Everett officers $42 an hour. After being forced off the site, someone left a bumper sticker on the manhole that said:

"Police Details Save Lives Governor Appointed Flagmen Won’t"

. These are the wrong-headed sentiments or Fevere Capt. James Guido's statement, who also had public road maintenance stopped. A clear cut example of conflict-of-interest.

“Your plan is faulty and we’re not going to allow you to work,”

My question this. If I found a government plan "faulty," say a plan for the union wage to be paid on all state construction sites, and I prevented these workers from preforming their job, what would happen?

Hat Tip: Boston Herald

An embarrassment of riches

So many entries, so little time! The Concise Encyclopedia of Economics is online.