A recent opinion article, “The Myth of Wage Stagnation” by Phil Gramm and John Early (GE), in The Wall Street Journal on May 18-19, caught my attention. Contrary to my understanding of the economic status of most Americans in the newly structured economy, they paint a very rosy picture of their economic well-being. Gramm is a former Republican senator from Texas and Early is a former assistant commissioner of the Bureau of Labor Statistics. They claim that, as compared to 1972, real average hourly earnings data for production and non-supervisory employees, adjusted by the Consumer Price Index (CPI), does not reflect “… changes in what Americans actually own and consume.”
Here are some of the highlights of their argument. In 2019, Americans have modern spacious homes with all the conveniences and access to technological products, have kitchens with greater variety of food with less drain on their budget, and have long lasting and safer cars. They are more college educated, have better health with longer life span and have higher median net worth.
GE prefer to use Personal Consumption Expenditure Price Index (PCEPI) to measure real earnings, since CPI does not reflect new consumption products in the market. On this point I agree with them. However, even when PCEPI is used to measure real wages, I would argue that their aggregate rosy scenario hides the economic plight of a large fraction of Americans in the economy, which some label as “Gig Economy” with, for example, more part-time work, contract workers and freelancers. Let me look deeper into the economic status of a large fraction of Americans.
The most alarming data is the decline in the labor force participation rate (LFPR) of prime age workers — 25 to 54 years of age. A Brookings study in 2018 shows the decline in the LFPR for both men and women. It is a disturbing trend because it significantly affects growth rates. As for real average earnings by education groups (adjusted for PCEPI, which GE prefer), the study by Ariel Binder and Professor John Bound in the Spring 2019 Journal of Economic Perspective, shows that during 1965-2016, real earnings for non-college and some college individuals have barely budged and were substantially lower in 2015 than in 1973.
Professor David Autor’s research in the May 2019 American Economic Review, shows that over four decades non-college workers as a group have not benefitted from the rising supply of and productivity of college-educated workers. Autor also argues that as jobs are more “skill-intensive in today’s cities compared to five decades ago, non-college workers in these places perform substantially less skilled work…” with substantially lower wages. This has occurred at the expense of mid-skill level jobs for non-college workers in urban labor markets. Even in Utah, where politicians are so proud of their economy, the middle class, the backbone of any economy, is shrinking. Hence a significant proportion of non-college workforce, and even those with some college, are not facing the rosier environment portrayed by GE.
Increasing job insecurity, lack of access of health care to more than a third of Americans, high college cost and debt, no retirement savings for a quarter of workers and worry by 44% of workers about adequate retirement savings (Federal Reserve Board survey) are disquieting signals for economic status uncertainty. Furthermore a recent Federal Reserve Board study in November 2018, shows that millennials, who entered working age between 2007 to 2009, are less well off than past generations, going even as far back as the Silent generation now aged 73 to 90. Millennials have lower earnings, fewer assets and less wealth. Estimates by Professor G. Zucman show that 1% of taxpayers control 39% of U.S. wealth and the bottom 90% have only 26% of the wealth. The bottom half of Americans have negative net worth according to Bloomberg.
The Centers for Disease Control reported in 2016 that workplace stress is a leading cause of health problems and loss of productivity. Utah even exceeds the U.S. in the percentage of age adjusted depression in adults during 2011-2017. Opioids addiction crisis and burgeoning suicide rates are a manifestation of increasing stress and depression in a growing proportion of Americans.
Hence, a superficial examination by GE of availability or even access to modern consumption products does not illustrate the real hardships faced by a significant proportion of Americans. In fact GE’s claim that “By virtually any definition of well-being, Americans are substantially better off today than they were half-century ago,” is misleading.