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  Chapter Nine:
 
MONEY
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  Average Earnings
  Minority Earnings
  Average Incomes
  Personal Consumption
  Philanthropic Donations
  Personal Debt
  Income Distribution
  Poverty
  Inflation

  

 

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MONEY

Average Earnings

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The real earnings of American workers improved steadily during the first three quarters of the century, but economists disagree about what happened during the last quarter.
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The hourly earnings of manufacturing workers, measured in 1999 dollars, quadrupled from early in the century through the mid-1970s. As the upper chart indicates, the wages for these workers, who were somewhat better paid than hourly workers in general, rose from $3.80 per hour in 1909 to $15.38 in 1973. In the last quarter of the century, however, earnings declined by about 10 percent, to $13.90 in 1999. The chart is based on data for manufacturing “production workers” because this is the only wage series that extends back to the early years of the century. 

The steady improvement of wages from the early part of the century until the mid-1970s is undisputed, but economists disagree about the trend after that time. In The Illustrated Guide to the American Economy, Herbert Stein and Murray Foss present a chart similar to this one, showing a decline in real earnings from 1978 to 1998, and four additional charts using alternate measures that show increases in real earnings during that period. Other economists claim to see a steep decline in those decades. 

There are two aspects to this puzzle: a shift from wages to other forms of compensation and significant flaws in the way the Consumer Price Index attempts to capture “real” wages. Wages may not have increased much after the mid-1970s, but the total compensation package received by employees improved significantly, as shown in the lower chart. The difference is made up by a growing array of fringe benefits that became increasingly valuable. Benefits such as employer-provided health insurance, bonuses, stock options, child care, tuition assistance, and vision and dental benefits expanded dramatically. 

To complicate matters further, experts are divided about whether the Consumer Price Index measures inflation accurately (see page 176 for a discussion of how the CPI is constructed). If the CPI significantly overstates inflation, then real earnings may actually have increased somewhat since the mid-1970s.


Chapter 9 chart 1

Source Notes
Source Abbreviations

HS series D 802; SA 1998, table 692; SA 1999, table 698; and Ben J. Wattenberg, Values Matter Most (New York: Free Press, 1995), page 83. See also employment cost trends from the Bureau of Labor Statistics, at www.bls.gov/ecthome.htm (accessed September 21, 2000). For a more thorough discussion of the dispute among economists about trends in real compensation, see Herbert Stein and Murray Foss, The Illustrated Guide to the American Economy, 3d ed. (Washington, D.C.: AEI Press, 1999), pages 104–111. For the CPI’s overestimation of inflation, see Senate Finance Committee, Toward A More Accurate Measure Of The Cost Of Living, report prepared by the Advisory Commission to Study the Consumer Price Index (The Boskin Commission Report), December 4, 1996, at www.ssa.gov/history/reports/boskinrpt.htm1#exec (accessed July 29, 2000).

 

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