Mantra vs. Reality

by Russ Roberts on March 9, 2007

in Standard of Living

In this piece in the Washington Post, Harold Meyerson makes a common complaint about the American economy and our standard of living:

Over the past 35 years, the massive changes in the U.S. economy have largely condemned American workers to lives of economic insecurity. No longer can the worker count on a steady job for a single employer who provides a paycheck and health and retirement benefits, too. Over the past three decades, workers’ individual annual income fluctuations have consistently increased, while their aggregate income has stagnated. In the brave new economy of outsourced jobs and short-term gigs and on-again, off-again health coverage, American workers cannot rationally plan their economic futures.

Unfortunately, this mantra contradicts an earlier statement by Meyerson  on the facts of the matter. This earlier statement was not made four years earlier or four months earlier or four weeks earlier or four days earlier. The earlier statement was made FOUR PARAGRAPHS earlier in the SAME COLUMN. Here’s the quote, referring to an article in the Post by reporter Blaine Harden:

Taking into account all households, married couples with children are twice as likely to be in the top 20 percent of incomes, Harden reported. Their incomes have increased 59 percent over the past 30 years, while households overall have experienced just a 44 percent increase.

So over the last 30 years, married couples with children have seen their incomes increase 59%. The increase for all households is 44%. Both of these numbers suffer from composition bias. Over the last 30 years, the number of single-headed households has grown dramatically, dragging down the average for purely statistical reasons. So the overall change in household income of 44% is not representative of the average family. Increased immigration, the addition of households with lower than average incomes, also reduces measured household income and understates the gains to families who were already here.

But even with this bias, a 44% increase isn’t stagnation.

BTW, the Harden article doesn’t make it clear, but these are probably averages. A better number is the change in the median. This report from the Census Bureau shows that between 1967 and 2005, real median household income was up 31% for all households. Using 1970 as the starting point and the increase is about 25%. So even including the compositional problems I mentioned and even the flaws in the CPI (see here and here and here) which cause the increase in real income to be understated, the median household isn’t stagnating financially.


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