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Are American Workers in a Great Stagnation?

March 29th, 2011 at 2:56 pm | 14 Comments |

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Economist Tyler Cowen, of whom I’m generally a big fan, has summarized an interesting post by Michael Mandel suggesting that recent claims of productivity growth have been illusory.  Cowen ends by trumpeting Hamilton Project analyses claiming to show that men’s earnings declined by 28 percent between 1969 and 2009.  This claim, like the Mandel analyses, reinforces Cowen’s argument that we are in a Great Stagnation, but it’s not true!  Stop this meme!

I’ve not had much time to blog recently, so I submitted a brief critique in the comments to the David Leonhardt blogpost that introduced the world to this unfortunate study (co-authored, unfortunately, by a fellow classmate of mine from Harvard’s inequality program) and in the comments to the Hamilton Project post.

Here’s the basic problem: the analyses assign all nonworking men annual earnings of $0, and since labor force participation among men has declined, the result is a big drop in median earnings over time.  But a lot of that decline in labor force participation is attributable to earlier retirement (they include men as old as 64), later and longer school enrollment (they include men as young as 25), rising “disability” rates (which do not correspond in any obvious way with changes in health or job demands but which do correspond with increasing generosity in disability benefits), and other factors having nothing to do with the strength of labor markets.

I re-crunched the numbers as follows.  I included all men age 20 to 59 except for those who said they worked only part of the year or not at all because they were retired, going to school, in the Armed Forces, sick or disabled, or taking care of home and family.  Using the inflation adjustment that the Hamilton guys likely used, I find a decline in median earnings of 9 percent, not 28.

Note, however, that comparing 1969 and 2009 holds up a likely peak year (when the business cycle was at a high) to a trough year (when it was at a low).  Comparing 1969 to 2007 is apples-to-apples, and when I did that, the median was exactly the same in both years (to the dollar, which is a pretty crazy coincidence).  Finally, if I use the Bureau of Economic Analysis “personal consumption expenditures” deflator, which I think overstates inflation somewhat less than other commonly-used deflators, median earnings among men rose 7 percent from 1969 to 2007.

Seven percent is no great shakes, but this figure is also too small for assessing how men’s economic fortunes have changed over time.  None of these analyses account for the fact that as a group, husbands reduced their hours over time in response to rising work and wages among wives.  Nor do they account for the rising share of non-wage benefits in total compensation (health and retirement benefits have eaten into wages, presumably following the preferences of the median worker).  Nor do they include the impact of taxes (which have declined) and tax credits (which have increased).  In addition, even my figures may overstate inflation, thereby understating the earnings increase over time–inflation measurement is much more tricky when choices within categories of goods and services and retail outlets explodes. Finally, the analyses do not account for changes in the composition of the population.  For instance, the fact that more men today are nonwhite and foreign-born pushes the 2009 median down, but it is likely that the typical white, nonwhite, native-born, and foreign-born men are all doing better than the trend in the overall median implies.  Someday I’ll get to a full analysis.

Subject for discussion (and a future post): how are we as a nation supposed to clearly understand the state of the economy and our living standards when even moderate think tanks and researchers are so eager to hype negativity?  As I’ve said before, policymakers aren’t the only people who–individually or collectively–can talk down the economy.


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14 Comments so far ↓

  • Elvis Elvisberg

    even moderate think tanks and researchers are so eager to hype negativity… policymakers aren’t the only people who–individually or collectively–can talk down the economy.

    “All Americans that they need to watch what they say, watch what they do.” — Ari Fleischer.

    Scott Winship has a reputation for rejiggering statistics in order to find his prefered conclusion– that all existing social and economic arrangements are great, and that tout est pour le mieux dans le meilleur des mondes possibles.

    See here: http://www.frumforum.com/income-inequality-its-a-global-thing#comment-258751 and here: http://www.frumforum.com/wealth-inequality-do-voters-care#comment-265358 for examples.

    • Arms Merchant

      Fine, but what’s wrong with this analysis? You haven’t refuted it.

      • Elvis Elvisberg

        100% true, & fair. I haven’t.

        Gotta run, so I won’t right now, either.

  • Non-Contributor

    10% unemployment.

    Scott must have a great job because here are he post topics.

    Are American Workers in a Great Stagnation?
    A new think tank analysis claims to show that the earnings of American male workers have declined by 28% since 1969. But do the numbers hold up?

    Income Inequality: It’s a Global Thing
    For all the concern over income inequality, is America’s experience really that different than the rest of the modern world?

    How Obama Misread His Mandate
    After Obama won the presidency, liberals thought they had a mandate. The electorate thought otherwise.

    Measuring Income Inequality
    Will Wilkinson recently argued for different price indexes for rich and poor to better measure inequality. But can we really compare buying hot dogs to caviar?

    Overstating Income Inequality
    A new book “Winner-Take-All Politics” draws attention to the issue of income inequality. But is the problem as bad as the authors claim?

    Stop Punking the Middle Class
    Pushing the claim that the middle class is in “crisis” only stalls the recovery and diverts attention from the disadvantaged groups really hurting in this economy.

    Do Americans Still Think Their Kids Will Be Better Off?
    Americans have always tended to be optimistic about their children’s future. But in the midst of our current, long recession, does that still hold?

    How the Media Fuels Economic Worries
    Edward Luce’s recent FT piece on “the crisis of middle-class America” is the latest article in the doomsday genre to get its facts all wrong.

    Just How Bad is the Recession?
    Paul Krugman has argued that the current recession is worse than the economic downturns of the 70s and 80s. But do his claims hold up?

    More Bad News on Jobs
    A new set of labor statistics reveals that the nation’s bout with unemployment may be even worse than suspected.

  • indy

    Subject for discussion (and a future post): how are we as a nation supposed to clearly understand the state of the economy and our living standards when even moderate think tanks and researchers are so eager to hype negativity?

    Better question for a future post: how are we as a nation supposed to clearly understand the state of the economy when people attempt to sum it up with one misleading statistical measurement?

  • NRA Liberal

    “…recent claims of productivity growth have been illusory…”

    Doug “Left Business Observer” Henwood has been saying this for a decade or more.

  • jg bennet

    How about free trade killing us? The taboo subject only Trump dare speak of….

    How Can America Create Wealth If Our Industrial Base Is Destroyed? 50,000 Manufacturing Jobs Have Been Lost Every Month Since 2001

    IT IS LONG BUT WORTH READING

    Any economy that constantly consumes far more wealth than it produces is eventually going to be in for a very hard fall. Many point to relatively stable GDP numbers as evidence that the U.S. economy is doing okay, but the truth is that we have had to borrow increasingly massive amounts of money to keep GDP numbers up at that level. The U.S. government is going to run an all-time record deficit of about 1.65 trillion dollars this year and average household debt in the United States has now reached a level of 136% of average household income. But borrowing endless amounts of money and consuming massive amounts of wealth with that borrowed money is a road that leads to economic oblivion. The only way to have a healthy economy in the long run is to create wealth. But how can America create wealth if our industrial base is being absolutely destroyed? According to Forbes, the United States has lost an average of 50,000 manufacturing jobs per month since China joined the World Trade Organization in 2001. Hundreds of formerly thriving industries in the United States are being totally wiped out. China uses every trick in the book to win trade battles. They deeply subsidize their domestic industries, they openly steal technology, they blatantly manipulate currency rates and they allow their citizens to be paid slave labor wages. So yes, the products coming from China are cheaper, but in the process tens of thousands of factories in the U.S. are shutting down, millions of jobs are being lost and the ability of America to create wealth is being compromised.

    In 2010, the U.S. trade deficit was just a whisker under $500 billion. Much of that trade deficit was with China.

    During 2010, we spent $365 billion on goods from China while they only spent $92 billion on goods from us.

    Does a 4 to 1 ratio sound like a “fair and balanced” trade relationship to anyone out there?

    Our trade deficit with China in 2010 was the largest trade deficit that one country has ever had with another country in the history of the world.

    In fact, the U.S. trade deficit with China in 2010 was 27 times larger than it was back in 1990.

    Needless to say, that is not a good trend.

    Our industrial base and our ability to create wealth is being wiped out so rapidly that it has now become a very serious threat to our national security.

    According to Forbes, there is only one steel plant inside the United States that is still capable of producing steel of high enough quality to meet the needs of the U.S. military, and even that plant has been bought by a European company.

    Meanwhile, China produced 11 times as much steel as America did last year.

    Not only that, China is now the number one supplier of components that are critical to the operation of U.S. defense systems.

    How in the world did we let that happen?

    So what happens if we have a conflict with China someday?

    But of more immediate concern is the loss of jobs that the destruction of our industrial base is causing.

    For example, the Ivex Packaging Paper plant in Joliet, Illinois just announced that it is shutting down for good after 97 years in business. 79 good jobs will be lost. Meanwhile, China has become the number one producer of paper products in the entire world.

    But China is not just wiping the floor with us when it comes to things like steel and paper.

    The truth is that China has now become the world’s largest exporter of high technology products. Back in 1998, the United States had 25 percent of the world’s high tech export market and China had just 10 percent. Ten years later, the United States had less than 15 percent and China’s share had soared to 20 percent.

    So how is China doing it? Well, as noted above, they are pulling every trick that they can think of.

    Most Americans think that we have “free trade” with nations such as China. That is a complete and total lie and anyone that believes that we have “free trade” with China does not know what they are talking about.

    China subsidizes their domestic industries to such an extreme extent that many global industries no longer even come close to resembling “free markets” as a recent story in Forbes noted….

    According to a story in the January 20, 2009 New York Times, government subsidies so thoroughly disrupted pricing in the global market for antibiotics that many western producers had to either move facilities to Asia or exit the business entirely. The reason this might matter to intelligence analysts is that the last U.S. source of key ingredients for antibiotics — a Bristol-Myers Squibb plant in East Syracuse, New York — has now closed, leaving the U.S. dependent on foreign sources in a future conflict.

    Our politicians and our business leaders have pursued economic policies that are so self-destructive that it defies explanation.

    How in the world could anyone be so stupid?

    Since 2001, over 42,000 U.S. factories have closed down for good. Millions of jobs have been lost. The ability of the once great American economic machine to create wealth has been neutered.

    The business environment in America is completely and totally pathetic at this point. The number of small businesses that are being created is also way, way down.

    According to the U.S. Census Bureau, only 403,765 small businesses were created in the 12 months that ended in March 2009. That was down 17.3% from the previous year, and it was the smallest number of small businesses created since records began being kept in 1977.

    The truth is that the U.S. economy is dying.

    We continue to consume about the same amount of wealth that we always have, but our net worth is declining.

    According to the Federal Reserve, more than two-thirds of Americans have seen their net worth decline during this economic downturn. In fact, the Fed says that between 2007 and 2009, the wealth of the average American family declined by 23%.

    So if it seems like your family and everyone around you is getting poorer, that is because it really is happening.

    We really are becoming poorer as a nation.

    We can see evidence of this all around us. Just consider a few of the examples that have been in the news in recent days….

    *One school district in the Chicago area is laying off 363 teachers.

    *The U.S. Postal Service is offering $20,000 buyouts to thousands of workers as they attempt to slash 7,500 good paying jobs.

    *The city of Detroit, once a shining example of middle class America, is now a rotting cesspool of economic decline and it saw its population decline by 25 percent over the decade that recently ended.

    Americans are not feeling the full impact of America’s industrial decline yet because we have been filling the gap in wealth creation with massive amounts of debt.

    In the years since 1975, the United States had run a total trade deficit of 7.5 trillion dollars with the rest of the world. That 7.5 trillion dollars could have gone to support U.S. businesses and U.S. workers, but instead it left the country and went into the hands of foreigners that do not pay taxes.

    Therefore, the U.S. government, state governments and our local governments have had to borrow massive amounts of money to make up the difference.

    Most people do not realize it, but the destruction of America’s industrial base has played a very significant role in the government debt crisis we are facing today.

    In addition, the millions upon millions of workers that have lost their jobs as America’s industrial base has been destroyed are now a drain on the system. Instead of creating wealth and being involved in economically productive activity, millions of American workers are now totally dependent on the U.S. government for survival.

    Do you think that it is just some sort of accident that we have 44 million Americans on food stamps?

    Don’t you think that a large percentage of those people would actually like to have good jobs that would enable them to sufficiently feed their families?

    If we continue on the path that we are currently on we are not going to have much of an economy left.

    Not that all trade is bad. Certainly not. For example, trade with Canada is generally a very good thing.

    However, the horribly unbalanced and unfair trade relationships that we have with nations such as China are ripping our industrial base apart. Our politicians have not been telling us the truth about what the “global economy” will mean for American workers. Most U.S. workers never realized that globalism would mean that they would be competing for jobs with workers willing to work for one-tenth the pay on the other side of the globe.

    Those people that believe that we can indefinitely maintain an economy where we consume far more wealth than we create are completely and totally delusional.

    Until the American people wake up and start demanding change from our politicians on these issues, 50,000 (or more) manufacturing jobs will continue to fly out the doors every single month and even more Americans will become dependent on government welfare.

  • Sadpragmatist

    Whether incomes have dropped a lot, slightly, or stayed the same doesn’t change the fact that productivity has soared from the average American worker and the only ones to benefit from this fact are a small percentage at the top.

    Or are you arguing that now too?

    And as a sidenote putting disability in quotes makes you look like a complete jagoff. Thought you should know.

  • ottovbvs

    Another conservative cockroach climbs out of the lavatory bowl. TRS kills it, but there’ll be another tomorrow.

  • LauraNo

    But you left all kinds of groups out in 2007 but didn’t do the same for 1969. Didn’t young men go to school or belong to the armed forces in ’69? I think that your analysis is no better than the one you are criticizing.

  • baw1064

    Something tells me that if, after extensive massaging of the numbers, they only manage to achieve (more or less) zero income growth over 40 years, the author doesn’t have a very strong case.

  • Mercer

    “moderate think tanks and researchers are so eager to hype negativity? ”

    Your own analysis is no growth in income for four decades. That sounds like lousy economic results to me. Are we supposed to feel positive about such numbers?

  • jamesj

    I’m a bit confused. The author’s analysis shows stagnant wages for several decades. How in the world does the author then come to the conclusion that there is no “Great Stagnation”? While the term “Great Stagnation” is stupid (as are most simple nicknames for complex situations) it is impossible to deny there’s been a change in wage growth and relative wealth for the majority of America’s middle class. This is what is being studied and discussed recently by serious economists and commentators.