Famed journalist H.L. Mencken once observed that the entire aim of politics is to keep the populace in a state of alarm by menacing it with imaginary hobgoblins. Rep. Alexandria Ocasio-Cortez’s latest antics reveal that little has changed.
The economy is currently enjoying one of its better runs in modern history: a record 125 months of consecutive growth, record low unemployment, and a stock market that recently closed at an all-time high. But some critics still are not impressed. AOC complained that wages aren’t growing fast enough. “The Dow soars, wages don’t,” the New York Democrat said. She called it “inequality in a nutshell.”
The Dow soars, wages don’t.
Inequality in a nutshell. https://t.co/hD1g1y4uBk
— Alexandria Ocasio-Cortez (@AOC) January 12, 2020
Claims that wages aren’t rising or aren’t rising fast enough are hardly unique. They are routinely rolled out by media figures, politicians, and a handful of economists who claim working people “haven’t had a raise” in years, if not decades. If true, this would be a stunning indictment of the economic system. Fortunately, such claims are built on half-truths and misdirections.
In fact, a simple look at Federal Reserve data shows that, over the last decade, average hourly earnings of all private-sector employees increased from $22.36 to $28.32. The crudest comparisons show at least a 2% increase in the past year, or at least 3% to 5% growth per year since 1990.
Importantly, it is not just the average wage that is rising. The nominal median wage went up by 3% to 4.5% each year, too. So, no, you cannot say that it is just “the rich getting richer,” as the median data solve that issue. This does not mean that every single person is earning more, as people lose jobs or take lower-paying ones every day, but, on average, workers are indeed earning more.
Still, the problem with crude comparisons is that money is getting less valuable, and things usually cost more now than they did last year or 30 years ago.
If we take into account price inflation, then the increase in earnings is not 4% this year, but 1.7%, or even as low as 0.6%. Measuring inflation is not an exact science, however. Economists will admit that it’s extremely difficult to measure changes in the value of goods and services over time, and this is evidenced by the wild variation between different measures of inflation.
Another significant piece of the wage puzzle is other forms of compensation, such as healthcare benefits, 401(k) contributions, profit-sharing, pensions, stock options, sick pay, bonuses, and other types of nonwage benefits. Such benefits, which don’t even include nonmonetary benefits such as working from home, free gym memberships, or “summer Fridays,” represent a sizable chunk of worker compensation, and a growing one. Importantly, these benefits usually are not reflected in wage statistics.
In 2019, workers received about one-third of their income from such benefits on average, up from 27% in 2000. For government workers, it’s even higher, at 42%. Rising healthcare costs account for about one-third of this increase, the New York Times pointed out, a fact that should surprise no one. It’s well known that surging healthcare costs are gobbling up a sizable portion of worker compensation.
Finally, and most importantly, politicians such as AOC use wage data to imply that individuals aren’t getting ahead, which is simply not true.
Sure, if you use a particular inflation index and ignore benefits, it will appear that wages have barely budged in decades. However, this doesn’t mean individuals are not moving up. They are.
Data show that people in the United States, like many Europeans, still enjoy great economic mobility. Yes, the public might overestimate the ability of the poorest to rise to the top — it’s been called America’s “civil religion,” after all — but the fact remains that two-thirds of those who start life in the bottom fifth of society will rise out of that socioeconomic quintile as an adult.
This could not happen if people were actually stuck in the wage purgatory many politicians claim exists. Recent surveys also show roughly half of people reported receiving a pay raise over the last 12 months, and just a small percentage of those, 26%, were “cost-of-living” adjustment raises.
To say that “Dow is soaring and wages are not” is either pointless or misleading. Market indexes rise and fall faster than average wages. To be angry at this is a sign of ignorance. To suggest that there is something wrong, [and therefore we need socialism] is misleading. pic.twitter.com/ZFTTIsd70X
— Zilvinas “Z” Silenas (@zsilenas) January 16, 2020
Comparing stock market gains with wages is misleading, but for AOC’s purposes, it is a great way to stoke class envy. It’s also a rather pointless and misleading exercise, since market indexes rise and fall faster than average wages. This fact does not in any way prove that there is something wrong with the economy. It’s akin to observing on a cold winter morning that, despite sunshine, it is still cold and concluding that there must be something wrong with the sun.
There are plenty of real economic challenges facing us, from the return of trillion-dollar deficits, the student loan bubble, and surging healthcare costs. AOC and her ilk need to realize we simply don’t have time to worry about wage hobgoblins.
Zilvinas Silenas became the president of the Foundation for Economic Education in May 2019, where Jon Miltimore is managing editor. Follow Jon on Facebook.
