Thursday, October 25, 2007

Middle Class Incomes: Up

Refuting everything Paul Krugman ever wrote, Terry Fitzgerald, Senior Economist at the Federal Reserve Bank of Minneapolis, confirms middle class income continues to rise:
Americans have experienced steady, gradual improvement in their standard of living since nearly the founding of the country. Each aging generation has regaled its children with nostalgic stories of difficult childhoods before the latest advances and income gains made life better. Even the Great Depression was only a temporary, though traumatic, pause in this progress—income per person was 50 percent higher by 1949 than it had been in 1929. Most Americans have long taken it for granted that their children's lives would be better than their own.

Has this agreeable tradition come to an end? Numerous recent commentaries conclude that it has, at least for “middle America”—the broad swath of people who live well above poverty but well below opulence. These articles are supported by statistics showing slow-growing—even falling—wages, and little growth in household income over the past 30 years. It's a pretty gloomy scenario.

But perhaps the past 30 years haven't really marked the end of two centuries of steady progress for average Americans. Statistics summarizing performance of the national economy tell a very different story. Gross domestic product per person, one of the mostly widely cited proxies for standard of living, has nearly doubled since 1975. Other measures of national economic performance, such as personal income, compensation of employees and the amount of goods and services consumed, have also risen substantially. . .

When the data are adjusted so that they more closely measure the same conceptual object, the disparity between the microeconomic and macroeconomic statistics largely evaporates, and I find that labor income per hour for middle America has not stagnated. Rather, the economic compensation for work for middle Americans has risen significantly over the past 30 years. . .

The 28 percent growth in median wages plus benefits is consistent with growth in national labor income per hour once the difference between medians and means is accounted for. Furthermore, similar wage growth occurred for a wide range of workers around the median.

(via Mike Moffatt)

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