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The Great Distortion

This week’s EconTalk is with Richard Burkhauser on the state of the middle class over the last 40 years and the importance of assumptions.

A lot of people believe that the middle class has made no progress since the 1970’s. There are numbers to back up the argument. But are the numbers reliable? Are they the right numbers?

Richard Burkhauser shows how sensitive the stagnation result is to various assumptions. If you use the median tax unit, then income has grown a little over 3% since 1979. Basically zero.

If you look at the median household instead of the median tax unit, and take account of family size, taxes, government transfers and the monetary value for employer-provided health insurance, the median household’s income has grown by 36%. Kind of a big difference.