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.