In chatting with friends here in Cambridge, all of whom are, needless to say, angry Democrats who blame all of the world’s ills on George W. Bush, the conversation has turned to some cheerful holiday subjects…
- is the average working American better or worse off than in decades past?
- is it easier or more difficult for an American to achieve a reasonable standard of living?
- is all of the increased wealth of our society going to a handful of folks at the top enjoying a new gilded age?
For these diehard Democrats, the answer is clear: the average person is worse off; the rich are a lot richer. One statistic that seems to support this way of looking at the U.S. is a chart of real wages showing that the average weekly earnings, in 1982 dollars, grew to a peak of $332 in 1972 and has fallen to $278 today.
http://visualizingeconomics.com/2006/08/15/average-income-in-the-united-states/ and
http://en.wikipedia.org/wiki/Household_income_in_the_United_States
show that real household income is still growing, albeit at a slower pace than between WWII and the early 1970s. How to explain this difference? The fall in average wage might indicate an influx into the workforce of people who work only part time, e.g., mothers of young children. The rise in family income might indicate an influx into the workforce of people who hadn’t been working before, e.g., wives of guys with jobs (though the Wikipedia entry indicates that the number of married households with two working partners is decreasing as a percentage of the total, maybe an indication that divorce has become more common).
One thing that nobody seemed to consider was the effect of immigration. If a bunch of folks show up here with limited education and poor English skills we wouldn’t expect them to earn high wages. It might not be an indication of unfairness if real wages have stagnated. It might simply mean that immigrants are arriving in huge numbers. The natives are experiencing income growth but they are disappearing in the statistics under the tide of immigration.
http://encarta.msn.com/media_461544532/Immigration_to_the_United_States.html
shows that the modern stagnation in real wages coincides with a huge increase in the number of immigrants. Should we feel sorry for a guy from Guatemala who earns only $277/week? As long as his standard of living is higher than it was in Guatemala, we shouldn’t pity him on economic grounds. If his children are not as prosperous as the children of a Rockefeller, should we pity them or give the family a few more generations to build wealth?
Complaints about the plight of the average worker seem to be contradicted by everyday experience. Habitually drunken carpenters who seldom show up to work are driving around in $35,000 SUVs, living in brand-new sprawl housing, and buying $2,500 flat-screen TVs that nobody in the 1970s could have imagined a need for. Brazilian house cleaners with questionable immigration status are driving the 4-year-old SUV that was traded in on that new one. Whole Foods is packed with people willing to line up to pay $150 for a slice of cheese, plate of sushi, bowl of soup, and bunch of free-range carrots. It is tough to hire anyone competent. We see the oppressed masses in Michael Moore movies, but we don’t see them on the streets or in the stores agonizing over whether to buy bread or medicine.
My explanation for the apparent contradiction between what one sees at the car dealers and BestBuy and how folks in the Peoples’ Republic of Cambridge feel is immigration and population growth. I mentioned this to one interlocutor, 70 years old now, and pointed out that if the U.S. had remained a country of 150 million as it had been in her youth, the average wage might well be quite high because labor would be scarce. She was shocked and refused to believe that there had been such significant growth, but the Census Bureau backed me up. We asked her what she thought the best years to have been an American were and she said the 1950s, despite the fact that conservatism strangled her beatnik spirit. The population of the U.S. reached 160 million in 1953, compared to 303.5 million today.
What about the countries that we regard as workers’ paradises with 35-hour work weeks, national health care, and lavish pensions? Visit
http://www.usatoday.com/news/graphics/300million_popchart/flash.htm
and click on “International”. Then click “USA”, “France”, and “Germany.” Notice that the last two have flat population graphs since 1950. Click on France and Germany again to remove them. Then click Mexico. A session with Edward Tufte’s books would probably result in the graph being rescaled, but it is clear that we have more in common with Mexico than with France.
So… should we give thanks this holiday season that we have managed to introduce 150 million additional people to the joys of traffic jams, strip malls, materialism, borrowing money, printing money, and invading helpless Third World countries (i.e., all of the things that make America great)? Or should we be sad that we can’t have a country of 303 million where a fresh-off-the-boat immigrant earns as much as someone whose family walked off the Mayflower?
http://www.nytimes.com/2007/12/01/technology/01online.html says that income distribution hasn’t changed since Jesus Christ was in the Temple…
Phil, I think your problem is hanging out with Cambridge limosine liberals and expecting intelligent and informed political debate. 🙂 Massachussets is a godsend to the Right as strawman for liberalism. Having said that, I think there is a potential counter argument to what you said. It’s possible that real wages have stagnated, even when taking into account immigration, and that the reason you still see such material evidence of wealth (i.e. the electrician with a plasma) is that while real wages have fallen, our ability to depress prices by outsourcing manufacturing to near-slave labor has more than kept pace. So, American workers might indeed be losing wages, but for every dollar we lose in wages, we gain more than a dollar back by exploiting a foreign quasi-slave. It’s a short term solution, but it works beautifully for now.
I understand the argument that the work we provide to India and China, etc., is still better for them relative to what they would have otherwise. I’m sure it is, and I’m not even touching the moral issue, here. I’m just saying it’s bad for US.
Trade with India and China has let us tap into to some incredibly economically powerful exploitation that has masked the decline of our own labor market, that is on par with the economic benefits of early American slavery. In fact, it is actually cheaper to pay a person in China to make stuff for us than it would be to have actual slaves in America. You couldn’t shelter and feed a person in America for 64 cents an hour. Hell, it costs more to board a cat. I think people would be shocked if they knew what was really going on in China, behind the patina of Western-style capitalism that they put on display to make us feel good about doing business with them. There are numerous reports of outright slavery in the rural areas, and even if Apple doesn’t use slaves, they use people who benefit from it, and that contributes to the depressed prices in China which allow labor to be paid so little and still survive.
This can’t go on forever. There are already signs of rising wages in China, and eventually we’ll have to pay dearly for this illusion of prosperity that you observe. So, I don’t entirely disagree with your thesis, but I’m skeptical that it can *all* be explained by immigration.
I agree with some of your analysis, but I do think that you are perhaps also colored by living in Cambridge. I also get confused by stories such as yours, since the most popular car among my co-workers, hardworking engineers with masters degrees from Top 5 engineering programs, was Mazda Protegé.
The existence of unprecedented levels of consumer debt and parental gifts make it difficult to see how people’s earnings really are. It is difficult as a young person from middle-class Flyover Country to see one’s peers living in New York and Boston, only to realize that many are only able to do so because of parental subsidies.
It seems that immigration raises the cost of housing in the good locations (I think Steve Sailer wrote something about “the dirt gap”).
The things I wonder about are:
* To what degree has the required education increased for similar jobs / earnings / lifestyle? It seems that a masters’ degree is now almost required to be middle-class.
* To what degree has the debt load increased for a middle-class lifestyle?
* Have cost-of-living differentials increased? I mean, can a middle-class person with a bachelor’s degree from a typical state university move from Flyover Country to New York, Boston, San Fransisco, or Los Angeles without parental subsidy and without living in poverty?
>
Phil, you’re just not looking. And you might want to redefine “average worker”– instead of carpenters (who are skilled, way-above-average workers, drunk or not) try cashiers at a WalMart (the largest employer in America).
And “best years to be an american” is an incredibly subjective yardstick– esp one to ask a seen-it-all (and maybe a little depressed) 70 y.o. living in/near Cambridge.
As a Masters degree recipient myself trying to keep my head above water, I see the wanton spending of my cohorts and continually wonder where all that money is coming from.
When these same individuals lose their job as a manager at a granite company, then their $450k house, then their Nissan Titan, then their townhouse, I realize that their personal economy was built like a financial deck of cards. Personal debt has skyrocketed with consumers spending unnecessarily like teenagers drinking at a keg party.
The under-reported story in this Subprime mortgage bail out is the bartender buying the $700,000 house. Living in Florida bartenders can make “good” money but I don’t think three quarters of a million dollars money. I wonder out of the 2million subprime mortgages, how many of those were people spending beyond their means?
These are personal anecdotal evidence I have come across and can only surmise the same is occurring throughout flyover country as well.
Sparked a discussion on Big Big Question.
Economists have spent a lot of time studying various factors in increasing income inequality, such as technology, trade, and immigration. The usual assessment is that trade and immigration both have a modest effect on inequality, but that technology is the main driver. Paul Krugman:
I’m seeing the superstar effect first hand now that I’m working at a startup that was recently acquired by a large company. I would say that as far as education, book smarts, and street smarts, I’m not particularly stupid compared to the people I work with, but most of them are running a different set of software – they think, live, and breath startups, technology, and opportunities for businesses of every kind. When you are so aware of what’s going on the marketplace, you can save an enormous amount of money and energy simply by not doing the stupid stuff. That ability alone is easily worth millions.
Compared to these folks, the big company engineers seem blissfully ignorant. Most don’t spend the time writing blogs, going out after work to talk to business contacts, and most certainly don’t spend much time thinking about the next big thing. As a result, not only are they unaware of what’s going on, they don’t have a marketable brand. Outside of their small circle of colleagues, no one else knows that they are competent. What’s more, their type of competence is not something that can be plucked out of a large company and used to run an independent company. The good thing is that if you know what makes superstars is not innate you can learn to think like one.