Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at intelligent and rational individuals, whose comments are very welcome.

"No matter how vast your knowledge or how modest, it is your own mind that has to acquire it." Ayn Rand

"Observe that the 'haves' are those who have freedom, and that it is freedom that the 'have-nots' have not." Ayn Rand

"The virtue involved in helping those one loves is not 'selflessness' or 'sacrifice', but integrity." Ayn Rand

14 August 2012

A Fallacious Liberal Claim of Income Stagnation

Democrats like to make the claim that median U.S. worker income has been almost stagnant since 1980.  This is said to show that trickle-down, supply-side, or self-responsibility economics does not work for the median worker.  Only the rich benefit, they say.  Let us examine this claim.

It is true that between 1980 and 2005 the median worker income minus benefits increased a mere $700 from $25,000 in 1980.  This ignores the fact that benefits grew at a much faster rate than did worker compensation in the form of direct income.  It also ignores the fact that many more workers with incomes above the median are making much more money now than they were in 1980.  Average income went up much more than did median income.  In 1980, only 23% of all jobs were considered high paying professional jobs, while more than half of all new jobs since 1980 are high paying professional jobs.  If this were to continue into the future, more than half of all jobs in existence will become high paying professional jobs and the median income will climb sharply.  But as yet, the median job is not a high paying professional job.  But we should note that the stagnation in median income is not due to most new jobs being burger flipping.

There is further news indicating that the median income figures for all workers are hiding the important truth.  It turns out that both white men and white women in the workforce have had much higher income gains since 1980 than the reported all worker gain of 3%.  White men have gained in income by 15% and white women have gained by 75%!  Does this mean that non-white workers have lost income since 1980?  No, not at all.  Nonwhite men gained 16% in income.  Nonwhite women gained 62% in income.  Every one of the individual categories gained many times more than 3% in income since 1980!  The reason the median income for all workers barely increased was because the workforce came to be increasingly composed of nonwhites and white women whose median group incomes were below the median income of all workers in 1980.  Changing demographics is the explanation for the nearly stagnant median income minus benefit result.

The median income for white men rose from $30,700 to $35,200, moving most of their income distribution curve well above the total worker distribution curve median.  Nonwhite men increased their income from $19,300  to $22,300.  White women raised their incomes from $11,200 to $19,600, while nonwhite women raised theirs from $10,200 to $16,500.  Because the fraction of the population which is nonwhite is growing, part of the reason for their lower incomes is because the nonwhite men and women have lower median ages and therefore less job experience.  Younger people with less job experience generally earn less.

The fact that the median income of all workers has been essentially stagnant between 1980 and 2005 is not an indictment of supply-side economics or Reaganomics as the Democrats love to claim.  This is a result of the very large increase in the fraction of nonwhite workers in that period who have long had lower incomes than white males.  This rapidly growing nonwhite worker fraction also has a lower median age and therefore has less job experience.  The employed Hispanic population was the primary growth fraction of the employed in 2005 compared to 1980.  The fraction of white workers decreased by more than 6%, while the fraction of black workers went up about 7%.  The fraction of Hispanics increased by a factor of 2.43!

Between 1980 and 1990, the labor force participation rate for women grew rapidly before plateauing from then until 2005.  The labor force participation rate of men fell slightly from 1980 to 2005.  This also caused the fraction of workers in a lower earning group to increase.

Supply-side economics or Reaganomics was advanced as a method to raise all boats.  It performed as advertised, despite being applied in only a modest and half-hearted manner.  White female worker and nonwhite female worker income advanced sharply, 75% and 62%, respectively.  White male and nonwhite male incomes advanced less dramatically, but they still increased 15% and 16%, respectively, from 1980 to 2005.  We should all be reasonably happy with these results in the face of a rapidly changing demographics.

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