Fake Story at the Times

by Russ Roberts on July 15, 2005

in Media, Work

In this story in yesterday’s New York Times (rr), Eduardo Porter reports more gloomy news for average Americans.  The headline:

How Long Can Workers Tread Water?

Pretty scary metaphor.  After opening with a paragraph about James Barnes, a security guard who has taken a second job delivering newspapers just to get ahead, we get this summary of economic life in America:

The wages of typical workers are treading water, growing roughly at
the same rate that inflation eats into their buying power. Last week,
the Labor Department reported that average wages for production and
nonsupervisory workers in the private sector, about 75 percent of the
labor force, reached $16.06 an hour in June, just 2.7 percent above the
level a year ago.

If correct, that is disappointing news.  We’d prefer growth to stagnation.  But the news is even worse:

Workers’ wages may be barely keeping up, but Americans’ average
incomes are growing briskly – in part, because of growth in the overall
number of jobs, including Mr. Barnes’s extra one. But it also reflects
other forms of income, flowing mostly to the more affluent, which are
fueling the consumer spending that has provided a crucial pillar of
support for economic growth over the last three years.

Will this chorus ever cease?  After their mammoth, inaccurate series on inequality, the Times is hammering home the point they have been making for decades: sure times are good, but only for a tiny slice at the top.  The rest of us get crumbs.  There’s only one problem with this chorus.  It isn’t true.  At least it isn’t true based on the numbers provided by the Times.  Here’s the chart:

Income The chart shows two lines.  The first is the growth rate in average hourly wages for production and non-supervisory workers.  These workers make up about 75% of the economy.  The line is basically flat, growing between two and three percent a year, roughly equal to the rate of inflation.  But the key comparison is to the other line in the chart, the growth rate in what the chart calls "employee compensation (wages and benefits)."  This number is for all workers and it’s going through the roof.  It’s growing at well above the rate of inflation, at 4 and 5 and 6 and even 7% on an annual basis.

Porter’s implication is that while the bottom 3/4 of the work force is treading water, the top 1/4 is living like Croesus.  Here’s the text in the chart:

While wages for ordinary workers are barely keeping up with inflation, overall incomes are up sharply because of a growing number of jobs and higher pay among the upper ranks.

So what the reporter wants us to conclude is that when you look at wages for the bottom 3/4 of the economy, they’re flat.  But the data that looks at all workers is zooming upward.  So that means all the gains are going to the people at the top.

Unfortunately for the reporter these data tell us nothing of the sort.  I spoke to the reporter.  The dramatic zooming line in the chart is taken from this table from the National Income and Product Accounts (NIPA), gathered by the Bureau of Economic Analysis.  It’s the growth rate in total compensation paid out in the US economy.  It’s wages plus benefits.  So the first apples and oranges problem is that the zooming line includes benefits and the flat line doesn’t.  Porter conceded that problem, but pointed out that even when you look at just wages and salaries, they’re zooming in a similar fashion.  He’s right.  But that number has a different apples and oranges problem.  He’s comparing average hourly earnings, a per worker measure of compensation to the total payments made to all workers, an aggregate measure.  It includes increases in number of jobs per worker, increases in the number of workers, raises and so on.  It shouldn’t be compared to average hourly earnings.  (It also uses a totally different methodology to compute the numbers, one that may not be terribly accurate for measuring employee compensation, but never mind.)

So the bottom line of the story is an anecdote about ONE worker who has taken a second job, a claim that workers are treading water because wages are just keeping up with inflation (ignoring the role of benefits in total compensation), then another fact that is not quite comparable but provocative that suggests that the most affluent workers might be doing very, very well.

How did this story get written?  Who thought of the idea of trying to frame the recent numbers on average hourly earnings as a story on increasing inequality?  I’d like to know.  I don’t think Eduardo Porter had an idea to use total compensation aggregated across all workers from the NIPA as a way of framing this story as an example of growing inequality.  I would guess he called one of the sources in the story to talk about the average hourly earnings numbers, maybe someone from the ubiquitous Economic Policy Institute which is quoted twice in the story, and the source said, hey, why not use these data from the NIPA accounts?

No skeptical voice is quoted in the story saying that perhaps these numbers are not really comparable.

Today, comes the news that inflation was flat in June.  From the Washington Post (rr):

With no inflation to offset pay gains, real average weekly earnings for
most U.S. workers rose 0.2 percent last month from their level in May,
the department said in another report. They were up 0.4 percent in the
12 months that ended in June, the first yearly gain since September.

When the average hourly earnings data are updated, they’ll be up too.  So the treading of water is over for now.  Good thing the Times ran its story yesterday.


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