Real Wages, after inflation, up 24%, mostly in lower incomes

[red-beard]

The idea incomes are stagnant or only growing only for top earners is bunk.


Wall Street Journal today:

Movin' On Up
November 13, 2007; Page A24

If you've been listening to Mike Huckabee or John Edwards on the Presidential trail, you may have heard that the U.S. is becoming a nation of rising inequality and shrinking opportunity. We'd refer those campaigns to a new study of income mobility by the Treasury Department that exposes those claims as so much populist hokum.
OK, "hokum" is our word. The study, to be released today, is a careful, detailed piece of research by professional economists that avoids political judgments. But what it does do is show beyond doubt that the U.S. remains a dynamic society marked by rapid and mostly upward income mobility. Much as they always have, Americans on the bottom rungs of the economic ladder continue to climb into the middle and sometimes upper classes in remarkably short periods of time.

The Treasury study examined a huge sample of 96,700 income tax returns from 1996 and 2005 for Americans over the age of 25. The study tracks what happened to these tax filers over this 10-year period. One of the notable, and reassuring, findings is that nearly 58% of filers who were in the poorest income group in 1996 had moved into a higher income category by 2005. Nearly 25% jumped into the middle or upper-middle income groups, and 5.3% made it all the way to the highest quintile.
Of those in the second lowest income quintile, nearly 50% moved into the middle quintile or higher, and only 17% moved down. This is a stunning show of upward mobility, meaning that more than half of all lower-income Americans in 1996 had moved up the income scale in only 10 years.
Also encouraging is the fact that the after-inflation median income of all tax filers increased by an impressive 24% over the same period. Two of every three workers had a real income gain -- which contradicts the Huckabee-Edwards-Lou Dobbs spin about stagnant incomes. This is even more impressive when you consider that "median" income and wage numbers are often skewed downward because the U.S. has had a huge influx of young workers and immigrants in the last 20 years. They start their work years with low wages, dragging down the averages.
Those who start at the bottom but hold full-time jobs nonetheless enjoyed steady income gains. The Treasury study found that those tax filers who were in the poorest income quintile in 1996 saw a near doubling of their incomes (90.5%) over the subsequent decade. Those in the highest quintile, on the other hand, saw only modest income gains (10%). The nearby table tells the story, which is that the poorer an individual or household was in 1996 the greater the percentage income gain after 10 years.
Only one income group experienced an absolute decline in real income -- the richest 1% in 1996. Those households lost 25.8% of their income. Moreover, more than half (57.4%) of the richest 1% in 1996 had dropped to a lower income group by 2005. Some of these people might have been "rich" merely for one year, or perhaps for several, as they hit their peak earning years or had some capital gains windfall. Others may simply have not been able to keep up with new entrepreneurs and wealth creators.
The key point is that the study shows that income mobility in the U.S. works down as well as up -- another sign that opportunity and merit continue to drive American success, not accidents of birth. The "rich" are not the same people over time.
The study is also valuable because it shows that income mobility remains little changed from what similar studies found in the 1970s and 1980s. Some journalists and academics have cited selective evidence to claim that income mobility has declined in recent years.
But the 58% of lowest-income earners who moved to a higher income quintile in this study is roughly comparable to the percentages that did so in several similar studies going back to the late 1960s. "The basic finding of this analysis," says the Treasury report, "is that relative income mobility is approximately the same in the last 10 years as it was in the previous decade."
All of this certainly helps to illuminate the current election-year debate about income "inequality" in the U.S. The political left and its media echoes are promoting the inequality story as a way to justify a huge tax increase. But inequality is only a problem if it reflects stagnant opportunity and a society stratified by more or less permanent income differences. That kind of society can breed class resentments and unrest. America isn't remotely such a society, thanks in large part to the incentives that exist for risk-taking and wealth creation.
The great irony is that, in the name of reducing inequality, some of our politicians want to raise taxes and other government obstacles to the kind of risk-taking and hard work that allow Americans to climb the income ladder so rapidly. As the Treasury data show, we shouldn't worry about inequality. We should worry about the people who use inequality as a political club to promote policies that reduce opportunity.

[Porsche-O-Phile]

Then why is personal savings at an all-time low and defaults on loans going through the roof?

[red-beard]

Jeff, the discussion is about wages/income, not spending.

[MRM]

That's the difference between anecdotal data (everyone on my block is . . .) and a large sample survey. What you perceive is only a small part of the picture - it is anecdotal. To verify your observations you need a large data survey.

[Porsche-O-Phile]

Interesting but I'm not so sure it matters much if it doesn't translate to greater buying power. That's the real issue (hence why I brought up sending).

It could be that this is evidence of inflation, not real-dollar wage increases. If dollar numbers go up and people can't buy more with their money (evidenced by either greater savings, greater spending, lower loan default rates, etc.) what's the point? It's a zero-sum game. That's my point.

I don't trust the government numbers for inflation for a minute. I think there's considerable inflationary pressure out there, but it's being downplayed/spun to avoid throwing markets into a panic.

[legion]

The media always has to cherry-pick whatever bad news it can find:

http://news.yahoo.com/s/ap/20071113/ap_on_re_us/income_gap

Incomes have increased among both black and white families in the past three decades — mainly because more women are in the work force. But the increase was greater among whites, according to the study being released Tuesday.

[gprsh924]

Originally Posted by Porsche-O-Phile

Then why is personal savings at an all-time low and defaults on loans going through the roof?

Because intelligence is at an all-time low and stupidity is going through the roof

[Porsche-O-Phile]

Originally Posted by gprsh924

Because intelligence is at an all-time low and stupidity is going through the roof

True 'dat.

Yet we're apparently rewarding this with higher wages?

[Superman]

Gosh I.........I had no idea that peoples' earnings increase as they become more mature. I guess that shows.....what? It shows that a 22 year-old's earnings might be expected to increase by the time they are 32. In that time, they have changed jobs.

A study on the earnings of folks between the ages of 62 and 72 might reveal sharp declines. Similarly meaningless.

What would be meaningful would be the tracking of the wages paid to a particular job or employment category over time, regardless of the incumbent. Oh, wait. That's been done already. And.......that increase has already been compared to inflation. And the results are not as impressive as this "study" attempts to be.

Just goes to show.......that people who don't understand statistics should not trust statistical reports.

[1fastredsc]

Originally Posted by Porsche-O-Phile

Interesting but I'm not so sure it matters much if it doesn't translate to greater buying power.

Bingo! Feels to me like all things being equal, buying power is going down just as fast as income supposedly goes up. What's the point of making more "adjusted" money if you can't use it on as much as you used to?

[grudk]

Two critiques:
1)inflation is running quite a bit higher than gov't figures. Did they use core or CPI?
2) 'Regression to the mean' is a statistical phenomenon for population groups. The widest outlyers tend to gravitate towards the mean over time (the bar graph distribution suggest this). Not really surprising that the poorest and richest incomes swing the most

In regard to taxes, it's true that the wealthy pay much more $ in total, but not as a percentage of total income. They pay less. Warren Buffet has offered $one million to anyone who can prove otherwise

http://money.cnn.com/2007/06/26/news/newsmakers/clinton_buffett/index.htm

I'm a republican, but I think our tax system is grossly unfair to the poor and middle class, esp now with AMT hitting more and more people

[red-beard]

Originally Posted by Porsche-O-Phile

Interesting but I'm not so sure it matters much if it doesn't translate to greater buying power. That's the real issue (hence why I brought up sending).

It could be that this is evidence of inflation, not real-dollar wage increases. If dollar numbers go up and people can't buy more with their money (evidenced by either greater savings, greater spending, lower loan default rates, etc.) what's the point? It's a zero-sum game. That's my point.

I don't trust the government numbers for inflation for a minute. I think there's considerable inflationary pressure out there, but it's being downplayed/spun to avoid throwing markets into a panic.

POP: The numbers are inflation adjusted which means it is a REAL increase. The 24% is based on reported income to the IRS, all income, and then adjusted for inflation. The 24% is the REAL gain in spending power.


The most intersting part to note is that the after inflation adjusted numbers for the top 5% and top 1% of earners, decreased. The top earners are not keeping up with inflation, while the lower wage earners are gaining faster than inflation.

[red-beard]

Originally Posted by grudk

Two critiques:
1)inflation is running quite a bit higher than gov't figures. Did they use core or CPI?
2) 'Regression to the mean' is a statistical phenomenon for population groups. The widest outlyers tend to gravitate towards the mean over time (the bar graph distribution suggest this). Not really surprising that the poorest and richest incomes swing the most

In regard to taxes, it's true that the wealthy pay much more $ in total, but not as a percentage of total income. They pay less. Warren Buffet has offered $one million to anyone who can prove otherwise

http://money.cnn.com/2007/06/26/news/newsmakers/clinton_buffett/index.htm

I'm a republican, but I think our tax system is grossly unfair to the poor and middle class, esp now with AMT hitting more and more people

Where are you getting your inflation numbers? CPI usually outruns MPI and most others. The only things filtered from CPI are forms of energy, since they shift quickly. Better to let those filter into the equation in the price of other goods.

Our truely poor pay no income tax, and then are granted a refund of the social security withholdings. So, how is our tax system unfair to the poor?

And to be hit with AMT, you are not a family of 4 earning $40K, you are a single filer earning about $65k with a lot of deductions, or a family earning $125K+ with a lot of deductions.

And the highest rates of our tax system are at the top. The "top" earners who pay less than the full rates are doing so on type of income that have different rates. A person with a higher AGI will pay more in percentage than a person with a lower AGI, when reviewing income tax.

The real problem we have is far to many hidden taxes. Social Security taxes are hidden in the cost of a business having employees. These taxes lead to either higher priced good, lower wages or both. The same can be said for any corporate tax or VAT.

[Superman]

Originally Posted by red-beard

The most intersting part to note is that the after inflation adjusted numbers for the top 5% and top 1% of earners, decreased. The top earners are not keeping up with inflation, while the lower wage earners are gaining faster than inflation.

What's really interesting is that someone actually did a research project to "discover" that a manager with a $200K salary cannot double his income as easily as a convenience store clerk.

It is pretty important to understand what this study says. It does not say incomes are rising. It says people, over time, earn more. Absolutely groundbreaking. And......people, as they mature professionally, can stay ahead of inflation. But what's NOT happening is that pay rates for jobs are not keeping up with inflation. And....perhaps the reason this study did not study that question or reach that conclusion is because it is a well-documented fact. This study confuses the phenomenon of increased professional maturity with wage increases. The former is happening. The latter is not.

[tobster1911]

Originally Posted by Superman

But what's NOT happening is that pay rates for jobs are not keeping up with inflation. And....perhaps the reason this study did not study that question or reach that conclusion is because it is a well-documented fact.

after-inflation median income of all tax filers increased by an impressive 24% over the same period. Two of every three workers had a real income gain .

What part of after-inflation are you missing? I don't know if the study is accurate or not but you claiming the study does not address this is just wrong.

Where is the well-documented fact to the contrary?

[red-beard]

Originally Posted by Superman

What's really interesting is that someone actually did a research project to "discover" that a manager with a $200K salary cannot double his income as easily as a convenience store clerk.

It is pretty important to understand what this study says. It does not say incomes are rising. It says people, over time, earn more. Absolutely groundbreaking. And......people, as they mature professionally, can stay ahead of inflation. But what's NOT happening is that pay rates for jobs are not keeping up with inflation. And....perhaps the reason this study did not study that question or reach that conclusion is because it is a well-documented fact. This study confuses the phenomenon of increased professional maturity with wage increases. The former is happening. The latter is not.

Supe, apparently you cannot read. THE STUDY IS INFLATION ADJUSTED! And the $200K EARNERS actually saw a DECREASE in the INFLATION ADJUSTED INCOME while the LOW END EARNERS saw THE LARGEST INCREASE in AFTER INFLATION income.

[Superman]

Man, you guys will do anything, including being dense, to draw the conclusions you like. I understand those wages were adjusted for inflation. Listen up:

A = Convenience Store Clerk Job
B = Nordstrom Shoe Salesman

C = IBM Director of Personnel
D = IBM Director of Marketing in North America

Two guys are part of this study. Bob has Job A at the start of the study and at the end of the study, has Job B. Sam has Job C at the start of the study and at the end of the study, has Job D.

Job A is a minimum wage job at the start of the study and at the end of the study. Annual earnings are $12,168 ($5.85 * 2080).

Job B is a commission sales job. Bob earns $36K there (not unsual. I sold shoes at Nordies)

Bob scores nearly a tripling of income. Adjusted for inflation, let's say that's an increase of 180%.

Sam was promoted from Job C to Job D during the study, and now makes $700K instead of only $580K. Adjusted for inflation, that might be a 20% increase.

Let's say that while these two gentlemen were furthering their careers, earnings for convenience store clerks,, Nordstrom shoe salesman and IBM executives were flat. Flat does not keep up with inflation, so in real wages these jobs fell. (this last bit will be important for the quiz question below)


So.....do we conclude that earnings are rising?

[Superman]

I guess I forgot the rolleyes smilie.

[red-beard]

The article is about WAGE UPWARD MOBILITY FOR G0D's SAKE!

You really didn't read it, you just rejected it outright because it doesn't fit your sense of the world.

[red-beard]

Inflation during the time was about 35%. Take the 35% increase, multiply by a 90% increase (1.35*1.9) and you end up with a 155% increase in wages. If shoe salesman was making $10/hr in 1995, he's are now making $25/hr. And most likely not as a shoe salesman.