Weekly Earnings: Not Comparable to Disposable Income
Mark Thoma recently scored a two-for-one shot at the NRO econopundits. He was aiming at something he calls Fuzzcharts and also bagged Donald Luskin with this:
Note also that Luskin whined incessantly when Krugman described a half a percent increase over five years as flat.
While Jerry Bowyer usually does follow his charts with incredibly fuzzy prose – at least he provides a chart. Since Luskin failed to chart real weekly earnings for the 5-year period from June 2000 to June 2005 (the approximately period that Paul Krugman was discussing), I have provided the chart. While it is true that real earnings were 0.6% higher as of June 2005 versus June 2000, the best description of this chart is noisy with very little upward trend. In fact, real earnings were lower in June 2005 than they were as of the end of 2001. But it is this Luskin statement that I find bizarre:
Or visit the website of the Department of Commerce, which shows that a comparable figures – per capita disposable income – is up 9.6 percent, again not “flat.”
Actually, real per capita disposable income as of 2005QII was 8.2% higher than real per capita disposable income as of 2000QII. Additionally, dividing by total population is different than dividing by employment – but I’m so impressed that Luskin finally figured out that over time comparisons should be made on a real per capita basis, let’s forgive these two minor points.
But does a 8.2% increase sound comparable to a 0.6% increase? What might explain the difference between the two series? One difference has to do with earnings being before taxes, while some of the growth in disposable income comes the pretense that the Bush Administration has cut taxes. Disposable income considers only current tax payments ignoring the deferred taxes implied by the additional Federal debt incurred over the past several years.
Of course, many workers will tell you that they did not get much of a tax cut, which is true since the Bush tax shift (not cut) will tilted towards high income individuals – especially those receiving capital income, which raises the second problem with Luskin’s claim that disposable income growth is comparable to weekly earnings growth. As Brad DeLong notes, the share of income received by labor has declined over the past few years. In other words, workers have not enjoyed much in the way of pretax income growth nor the benefits of reduced current taxes. Of course, Luskin has a way of saying “so what” when it is pointed out that his spin of rising income does not apply to labor income – at least over the past few years.