What is Noah thinking?
Noah Smith put up a post Sunday purporting to show that things aren’t so bad for the middle class. Then he immediately shows us a chart of median household income. Stop right there. As I have argued before, this is always going to give you a rosier picture than reality. We need to look at individual data, aggregated weekly (because average hours per week have fallen for non-supervisory workers), to know what’s going on.
Because the individual real weekly wage is still below 1972 levels, households have had to compensate by having more incomes and going into debt. They have traded time and debt for current consumption. This is not an improvement in the middle class lifestyle. Commenter Richard Serlin points out that we also need to consider risk as well as average incomes, and he is right. The middle class is less secure than it was in 1972.
Noah has lots of interesting things to say, and you should check out his blog if you haven’t already. But this is an error on his part, and I don’t understand what he’s thinking.
I read his post and was rather shocked. He seems to ignore the simple fact that for most people, what they have to trade is hours of work, and hours of work pay less than ever and harder to get. He’s been living in economist-land too long.
From the employer’s perspective, it’s all gravy.
I agree Noah has a lot of interesting things to say but this was my comment over there:
I’m confused on why Noah compared 1979 to 2000 when DeLong seems to be aiming at 2015. (I’m confused generally at why progressive economists start comparisons 1979ish instead of 1973, the last year wage “equality.”) I compare 1973 to present — even adjusted for household size (w/o adjusting for hours) that leave the median a big 20% ahead after per capita income grew 66% …
… and going down. The dip isn’t a glitch — it is a product of total de-unionization (imagine how poor Germans would be in 2015 if they never had unions); no matter if everything else worked right. The top 10% used to get most of the growth. Now the top 1% get 95% — seemingly not a glitch.
If the latter is permanent (or gets worse!), then, by the time per capita GDP grows 50% the top 1% will have 75% of the 150%, etc.
The federal minimum wage is almost $4 lower than in 1968 — after per capita income doubled.
The real minimum needs line for a family of three is more like $1000/wk according to the 2001 Ms. Foundation book Raise the Floor (table 3-2 on p.44). Yet the median wage is $26,000 — that’s all those people we come in contact with everyday at one of their working class jobs. A $15 minimum wage would only shift 3.5% of GDP — easily doable. Ditto for paying people enough to work across the board.
100,000 of what I would guess are 200,000 Chicago gang age males are in street gangs I would assert because they wont work for half what the minimum wage should be. UC Berkeley political scientist who spent 9 years on the streets of 5 NY and LA ghettos discovered that the schools there don’t work because too many of the students (and teachers!) don’t see anything enough rewarding waiting for them in the labor market to make it worth the extra effort.
So we have not done too well — but it only takes a reasonable, shall we say, re-sharing of incomes (permanent basis) to straighten it all out. Which means re-unionization.
To which I add a follow up:
The beginning of quick re-unionization? — what a Democratic issue! — couldn’t just leave my post above hanging with no suggestion of a practical way back. 🙂
* * * * * * * * * *
A wilder card? States could conceivably pass legislation which would set up the federal RICO statute to prosecute anti-union “consultants” who conspire with managements to deny employees their federally prescribed right to vote on certifying a union — by peremptorily firing union proselytizers. Currently this extortion is nowhere punished as a criminal offense. It merely violates administrative law laid down by the National Labor Relations Board, and employers found guilty pay a (usually small) compensation for lost wages (not a penalty).
IF A STATE MAKES THIS extortionate deprivation of employees’ core economic — and by extension political — strength into A STATE CRIME, then, the federal RICO statute could apply to perpetrator within that state. The crime would fit under the “extortion” category of RICO. The feds used RICO to chase the mob out of our unions — time for RICO to chase out the union busting mob — that are having an infinitely more deleterious effect on the entire fabric of American democracy.
Sorry; I should have added this over there since I commented on Monday’s holiday: When I explained (what’s left of) America’s labor market to my brother John he came back with: “Martin Luther King got his people on the up escalator just in time for it to start going down for everybody.”
@Denis, good comments. If we look at real weekly wages and adjust for household size, we get at most a 2.9% increase in individual wages per household member, going from $110.24 ($341.73/3.1) in 1972 to $113.40 ($294.83/2.6) in 2012, the last year available in my immediately available spreadsheet. So at best less than 3% improvement in 40 years, on the most favorable treatment of the data for Noah’s side. And of course risk has risen while retirement coverage has fallen due to replacing pensions with 401(k) plans.
Kenneth, just want to add one observation: that 3 percent improvement (at best) becomes negative as you go down the income scale. People lower on the scale have seen real reductions in living standards over the decades. (Someone please inform Jeff Greene.)
I guess I should note that — assuming those 100,000 Chicago street gang members are not actively looking for work — then, they represent and extra 7% unemployment.
Opps (as usual)
@PJR, you are quite right. And I’m not sure we should adjust by dividing per capita. If there are economies of scale for household income, there are adjustment that could be made to the adjustment. The OECD has some thoughts on “household equivalencies” here: http://www.oecd.org/eco/growth/OECD-Note-EquivalenceScales.pdf
Dr. Warren pretty much covered this in “The Coming Collapse of The Middle Class” and “The Two Income Trap.” Keeping your head above water from the eighties onward meant two incomes rather than surviving on one.