Inflation-adjusted average weekly pay this year for production and nonsupervisory staff in the United States is 9% below the 1972 level, using 2019 dollars as per the chart above.
While there are a few caveats to this startling statistic, there are other data which show that 1) the pattern in 1948-1973 of employee compensation tracking productivity — defined as the economic output of goods and services per labour hour — began to diverge from the mid 1970s 2) CEO pay of large companies has jumped to several hundred times its company’s median pay 3) Low income households have little or nothing invested directly or indirectly in stocks even though the S&P (Standard and Poor’s) 500 average monthly closing price has risen by a real 500% since 1970.
The US has 2 measures of inflation — the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is a variation of the consumer price index (CPI), as compiled by the Bureau of Labor Statistics (BLS) and the personal consumption expenditures price index (PCE) which is produced by the Bureau of Economic Analysis.
The PCE updates the market basket of goods and services monthly based on what people actually buy and it is argued that the prices of durable goods, in particular, have fallen in recent decades and quality has improved. The Federal Reserve has been using the PCE index as its measure of inflation, since 2000.
Using PCE as a deflator would mean that the earnings would be 28% higher in 2019 compared with 1972 — hardly a big deal in a period of almost half a century.
Mark Cliffe of ING, the Dutch bank, argues here in respect of the US and underreporting the impact of the digital economy:
"Living standards are not stagnant as widely assumed but are still rising. If GDP has been under-estimated by 1% p.a. since 1990, then median income has risen 50% instead of the 15% recorded. And if we just take the period since 2007, median incomes are officially reported up just 5.5%. With 1% p.a. under-measurement the right figure would be 16.5%."
There are often differences in methodologies used by researchers on inequality and earlier this month, Emmanuel Saez and Gabriel Zucman, French economists who work at the University of California at Berkeley, claimed in a new book they co-authored that in 2018, America’s richest 400 households paid a lower effective tax rate (23%) than the entire bottom half of American households (24.2%) see here and here. They include state and local taxes and omit some means-tested benefits.
Jason Furman of Harvard who was President Obama's chairman of the Council of Economic Advisers took issue with the authors as they omitted the refundable portion of the earned-income tax credit, a subsidy for wages which is part of the tax code that benefited 25m mainly low-income people at a cost of about $63bn in 2018, according to the Internal Revenue Service.
- The Congressional Budget Office (CBO) in 2019 reported that in respect of the period 1979-2016, "For the lowest quintile (1% to 20%), cumulative growth in incomeafter transfers and taxes (85%, or 1.7% a year) was significantly greater over the period than was growth in income before transfers and taxes (33%). That change was due to an expansion of means-tested transfers (especially Medicaid benefits) and a reduction in federal taxes (largely from an expansion of refundable tax credits). By contrast, for the highest quintile, cumulative growth in income after and before transfers and taxes was similar, at 101% and 99%, respectively. The same was true for the top 1% of the income distribution: 226% versus 218%";
- Pay ratios of Fortune 500 company CEOs to their employees range from 2 to 1 to nearly 5,000 to 1. The average CEO/worker ratio is 339 to 1. Bloomberg has cited "Estimates by academics and trade-union groups put the number at 20-to-1 in the 1950s, rising to 42-to-1 in 1980 and 120-to-1 by 2000";
- Big companies are required by law to disclose the CEO ratio to the median (the mid-point level where 50% are above and 50% below) employee income in their firms and the AFL-CIO, the US trade union congress, reported this year that, "In 2018, CEOs of S&P 500 companies received, on average, $14.5m in total compensation. The average S&P 500 company CEO-to-worker pay ratio was 287 to 1.";
- According to the Federal Reserve (see Figures A & B below) in 2016 the bottom 50% of the population had 1% of the wealth compared with 3% in 1989 while the top 10% grew from 67% to 77%. The wealth share with a threshold of $10.4m net worth of the top 1% increased from about 30% to 39% over the same period, slightly surpassing the wealth share of the next highest 9% of families combined;
In summary, there hasn't been income stagnation in the United States in recent decades when a broader view is used.
However, when 1% of the population owns almost 40% of the wealth and the top 10% own 77% of the wealth, it should be obvious that the American dream has become a bad joke.
African-American victims of a flood queue at a Red Cross relief station in Louisville, Kentucky, January 1937. About 400 people were killed and 1m left homeless in massive flooding across five states.
In 2017 the New York Times reported that "In 2015 — the most recent year for which data are available — black households at the 20th and 40th percentiles of household income earned an average of 55% as much as white households at those same percentiles. This is exactly the same figure as in 1967."
