The Myth of a Stagnant Middle Class
Household spending on food, housing, utilities, etc. has fallen from 53% of disposable income in 1950 to 32% today.
By Donald J. Boudreaux & Mark J.Perry, WSJ Opinion, January 23, 1013
A favorite "progressive" trope is that America's middle class has stagnated
economically since the 1970s. One version of this claim, made by Robert Reich,
President Clinton's labor secretary, is typical: "After three decades of flat
wages during which almost all the gains of growth have gone to the very top," he
wrote in 2010, "the middle class no longer has the buying power to keep the
economy going."
This trope is spectacularly wrong.
It is true enough that, when adjusted for inflation using the Consumer Price
Index, the average hourly wage of nonsupervisory workers in America has remained
about the same. But not just for three decades. The average hourly wage in real
dollars has remained largely unchanged from at least 1964—when the Bureau of
Labor Statistics (BLS) started reporting it.
Moreover, there are several problems with this measurement of wages. First,
the CPI overestimates inflation by underestimating the value of improvements in
product quality and variety. Would you prefer 1980 medical care at 1980 prices,
or 2013 care at 2013 prices? Most of us wouldn't hesitate to choose the
latter.
Second, this wage figure ignores the rise over the past few decades in the
portion of worker pay taken as (nontaxable) fringe benefits. This is no small
matter—health benefits, pensions, paid leave and the rest now amount to an
average of almost 31% of total compensation for all civilian workers according
to the BLS.
Third and most important, the average hourly wage is held down by the great
increase of women and immigrants into the workforce over the past three decades.
Precisely because the U.S. economy was flexible and strong, it created millions
of jobs for the influx of many often lesser-skilled workers who sought
employment during these years.
Since almost all lesser-skilled workers entering the workforce in any given
year are paid wages lower than the average, the measured statistic, "average
hourly wage," remained stagnant over the years—even while the real wages of
actual flesh-and-blood workers employed in any given year rose over time as they
gained more experience and skills.
These three factors tell us that flat average wages over time don't
necessarily support a narrative of middle-class stagnation. Still, pessimists
reject these arguments. Rather than debate esoteric matters such as how to
properly adjust for inflation, however, let's examine some other measures of
middle-class living standards.
No single measure of well-being is more informative or important than life
expectancy. Happily, an American born today can expect to live approximately 79
years—a full five years longer than in 1980 and more than a decade longer than
in 1950. These longer life spans aren't just enjoyed by "privileged" Americans.
As the New York Times reported this past June 7, "The gap in life expectancy
between whites and blacks in America has narrowed, reaching the lowest point
ever recorded." This necessarily means that life expectancy for blacks has risen
even more impressively than it has for whites.
Americans are also much better able to enjoy their longer lives. According to
the Bureau of Economic Analysis, spending by households on many of modern life's
"basics"—food at home, automobiles, clothing and footwear, household furnishings
and equipment, and housing and utilities—fell from 53% of disposable income in
1950 to 44% in 1970 to 32% today.
One underappreciated result of the dramatic fall in the cost (and rise in the
quality) of modern "basics" is that, while income inequality might be rising
when measured in dollars, it is falling when reckoned in what's most
important—our ability to consume. Before airlines were deregulated, for example,
commercial jet travel was a luxury that ordinary Americans seldom enjoyed.
Today, air travel for many Americans is as routine as bus travel was during the
disco era, thanks to a 50% decline in the real price of airfares since 1980.
Bill
Gates in his private jet flies with more personal space than does Joe
Six-Pack when making a similar trip on a commercial jetliner. But unlike his
1970s counterpart, Joe routinely travels the same great distances in roughly the
same time as do the world's wealthiest tycoons.
What's true for long-distance travel is also true for food, cars,
entertainment, electronics, communications and many other aspects of
"consumability." Today, the quantities and qualities of what ordinary Americans
consume are closer to that of rich Americans than they were in decades past.
Consider the electronic products that every middle-class teenager can now
afford—iPhones, iPads, iPods and laptop computers. They aren't much inferior to
the electronic gadgets now used by the top 1% of American income earners, and
often they are exactly the same.
Even though the inflation-adjusted hourly wage hasn't changed much in 50
years, it is unlikely that an average American would trade his wages and
benefits in 2013—along with access to the most affordable food, appliances,
clothing and cars in history, plus today's cornucopia of modern electronic
goods—for the same real wages but with much lower fringe benefits in the 1950s
or 1970s, along with those era's higher prices, more limited selection, and
inferior products.
Despite assertions by progressives who complain about stagnant wages,
inequality and the (always) disappearing middle class, middle-class Americans
have more buying power than ever before. They live longer lives and have much
greater access to the services and consumer products bought by billionaires.
Mr. Boudreaux is professor of economics at George Mason University and
chair for the study of free market capitalism at the Mercatus Center. Mr. Perry
is a professor of economics at the University of Michigan-Flint and a resident
scholar at the American Enterprise Institute.
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