Saturday, April 8, 2017

The Myth of Stagnant Income

This is from Greg Mankiw:

This paper by Bruce Sacerdote is worth noting:
Despite the large increase in U.S. income inequality, consumption for families at the 25th and 50th percentiles of income has grown steadily over the time period 1960-2015. The number of cars per household with below median income has doubled since 1980 and the number of bedrooms per household has grown 10 percent despite decreases in household size. The finding of zero growth in American real wages since the 1970s is driven in part by the choice of the CPI-U as the price deflator; small biases in any price deflator compound over long periods of time. Using a different deflator such as the Personal Consumption Expenditures index (PCE) yields modest growth in real wages and in median household incomes throughout the time period. Accounting for the Hamilton (1998) and Costa (2001) estimates of CPI bias yields estimated wage growth of 1 percent per year during 1975-2015. Meaningful growth in consumption for below median income families has occurred even in a prolonged period of increasing income inequality, increasing consumption inequality and a decreasing share of national income accruing to labor. 
It is really impossible to compare wages over time. How do you compare cellphones versus rotary phones of yesteryear in dollar terms to understand what wages meant in the two periods? So I would write off the second half of the above observations. However, there is something to be said for the first half. Cars per household and bedrooms per household do tell us something. It isn't something we can fit into one nice neat number to understand changes over time but we all do know that an increase in cars and bedrooms per household is an improvement in lifestyle, thus, such periods can't be in general a period of stagnant income.



  1. Cars and houses are purchased with loans. The missing factor is debt. The increase in credit explains both without wages increasing.

    Also cars last longer with less care today. Fewer cars need be purchased and can be retained to have more of them at any given time.

    1. With no mention of debt and stealth inflation as it relates to purchasing power for value received particularly in staples such as food and housing had me looking for the onion article reference.

      Just like all fools this guy lives in a bubble and has no clue about the nuance of greed and gouging perpetrated by the monopolistic oligarchy.

      Another status quo lap dog.

    2. Yes, as you type on a device that wasn't available 20 years ago and you post a comment on a platform that wasn't available 20 years ago.

      What a clown.

    3. Dobbs, 20 years ago was 1997. By then I had been running my own online service for 6 years. While this particular device had not yet been made I have been participating in online discussions since 1990 and usually typed on a device made in 1978. I was also late to game, more so due to the year of my birth than anything else. I know, go back further. If you go back far enough I wasn't available. The device is irrelevant.

      What you are trying to say is that the standard of living is higher because today's products are subjectively and in some cases objectively better. So? I stated as much wrt to autos. The market is supposed to offer more for less as time goes on. You have decided to look at what has happened in spite of the central bank and the state and decide that makes what they did acceptable?

      If people had to try and live with modern salaries/wages with modern taxation, modern obligations, modern prices and all the rest with the credit availability of some past era would they be able to maintain their present lifestyle? I think not. They might not even be able maintain the lifestyle of that bygone era.

  2. Wages down? No worries. Credit up! Go bananas; buy that car, build that extra bedroom.

  3. As usual, RW shows his ignorance. I can assure you that wages are stagnant. Must be nice to have million or two as backup. I do agree that some sectors of technology are better than ever. I would not go back to a 19" tube TV of the 80's for about $300; you can clearly get a better TV these days for that amount of money.

    But we are in a recession and there are too many unemployed people. The illegal population and H-1's need to go.