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The Myth of Household Wage Stagnation



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If I can piggyback Mark Hemingway’s brief post of last night, the Wall Street Journal op-ed to which he links is crucial for understanding just how bogus the allegations of household income stagnation really are. Every Corner reader should be familiar with it, because we’ll all be hearing a lot of economic foolishness coming from the Obama and Clinton campaigns in the coming months.

The average American’s standard of living has dramatically improved since 1970. This fact confronts us every day — to say otherwise would be like stupidly insisting in your freshman philosophy class that you really are a brain in a vat.

I want to condense Brad Schiller’s argument into three main points:

1) Yes, the income share of the bottom 20 percent of households shrank from 4.1% in 1970 to 3.4% in 2006. But so what? That is 3.4 percent of a pie three times as large as the pie of 1970. If you adjust that for growth in the number of households, the average income of households in the bottom 20 percent has risen by 36% since 1970.

Translation: the poorest Americans are richer than they used to be, in addition to being among the richest poor people in the world.

2) Household income is a terrible measure for comparing 1970 with today — one major reason being that the average household has shrunk since then by one-fifth. Also, 27 percent of households today are one-person households — up from 17 percent in 1970. One-person households are the most likely to be in the bottom quintile. Consonant with this fact, Thomas Sowell explained in a recent NROTV interview with Peter Robinson that the top 20 percent household bracket contains nearly twice as many actual people as that bottom 20 percent bracket:

Households are of different sizes…There are 39 million people in the bottom 20 percent of households, and 64 million in the top 20 percent.

That’s not merely to say that more people equals more money. The households in the top-earning quintile contain more people because more of them represent intact traditional families — the stable social environment in which economic success is statistically most likely.

3) Nor are all of those in the bottom quintile (under $18,500 per year) economic hard-cases. The bottom 20 percent includes millions of young people starting their first jobs, who will earn more as they grow older. It includes some retirees with assets but little income, and millions of new immigrants just stepping up to the bottom rung of the economic ladder. And yes, millions of chronically unemployed householders, too.

But let’s take that bottom quintile for what it is and do a bit of amateur number crunching:

  • The 39 million people living in the bottom-earning household quintile (13 percent of Americans) made a total of $476 billion in 2006.
  • If they were their own nation — let’s call it Carteria (please, suspend your disbelief for a moment) – they would have had a per capita Gross National Income of $12,205 in 2006. (Their per capita GDP would be much higher, but also impossible to calculate with the numbers we’re given.)
  • According to my highly scientific survey of Wikipedia, that puts Carteria in a tie with Saudi Arabia for 41st place in per capita income. The average Carterian would be well ahead of the average Mexican and twice as well-off as the average Venezuelan or Russian.

That’s not great, but it’s not so bad considering that Carterians all come from the 23 million lowest-earning households in the United States.

So really, stop whining about “wage stagnation” and go get a job. And no, that comment is not directed at low-earners, it’s directed at John Edwards and his “Two Americas.” We’re on to you, pal.



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