July 31, 2015

NO ONE HAS IT HARDER THAN THEIR FATHER DID:

Are US Middle-Class Incomes Really Stagnating? (Martin Fekldtein, 7/30/15, Project Syndicate)

Any adult who was alive in the US during these three decades realizes that this number grossly understates the gains of the typical household. One indication that something is wrong with this figure is that the government also estimates that real hourly compensation of employees in the non-farm business sector rose 39% from 1985 to 2015.

The official Census estimate suffers from three important problems. For starters, it fails to recognize the changing composition of the population; the household of today is quite different from the household of 30 years ago. Moreover, the Census Bureau's estimate of income is too narrow, given that middle-income families have received increasing government transfers while benefiting from lower income-tax rates. Finally, the price index used by the Census Bureau fails to capture the important contributions of new products and product improvements to Americans' standard of living.

Consider first the changing nature of households. From 1980 to 2010, the share of "households" that consisted of just a single man or woman rose from 26% to 33%, while the share that contained married couples declined from 60% to 50%.

When the nonpartisan Congressional Budget Office (CBO) conducted a detailed study of changes in household incomes from 1979 to 2011, it expanded the definition of income to include near-cash benefits like food stamps and in-kind benefits like health care. It also subtracted federal taxes, which fell from 19% of pretax income for middle-income households in 1980 to just 11.5% in 2010. To convert annual incomes to real incomes, the CBO used the price deflator for consumer expenditures, which many believe is better for this purpose than the consumer price index. The CBO also presented a separate analysis that adjusted for household size.

With the traditional definition of money income, the CBO found that real median household income rose by just 15% from 1980 to 2010, similar to the Census Bureau's estimate. But when they expanded the definition of income to include benefits and subtracted taxes, they found that the median household's real income rose by 45%. Adjusting for household size boosted this gain to 53%.

And, again, even this more substantial rise probably represents a substantial underestimate of the increase in the real standard of living. The authorities arrive at their estimates by converting dollar incomes into a measure of real income by using a price index that reflects the changes in the prices of existing goods and services. But that price index does not reflect new products or improvements to existing goods and services.


Posted by at July 31, 2015 4:00 PM
  

blog comments powered by Disqus
« IT'S GOING TO HAPPEN SOONER OR LATER...: | Main | BUT WHAT DO RESULTS MATTER TO IDEOLOGUES?: »