Add Another Busted Economic Myth to the Pile

Myth: "Sure the economy is expanding, but real wages are declining, and the average family is falling behind."

Reality (link requires subscription):

So what has really happened in the last 5-plus years?

  • Real wages are up slightly, in contrast to a decline in the comparable period of the early 1990s. The "real wages" figure understates the improvement, because the tax cuts of 2001 and 2003 have enabled take-home compensation to increase even more. By contrast, the 1991 and 1993 tax increases caused the take-home compensation of workers during that period to fall by more than the 1.5% indicated.
  • Real compensation is up significantly. I believe that the main reason it is up by so much more than real wages is that health care costs have been rising at a rate that is significantly higher than inflation, and employers are in many cases absorbing the lion's share of those increases.
  • Median household net worth is up significantly as well, due largely to the runup in housing prices and the partial recovery of the stock market. Note that this is a median figure (half are higher, half are lower), meaning that the result isn't affected if the very rich have benefitted disproportionately (a subject for another time).

The Wall Street Journal adds:

Our point isn't to disparage the growth of the 1990s, which was a boon to all Americans. The recession of the early 1990s was steeper than the recession of 2001, so the wage declines were larger. And we should point out that wage gains accelerated in the latter half of the last decade, as growth continued and the labor market grew tighter. We mention all this merely to point out that the current expansion is at least as healthy as that one at a comparable stage, and that if growth continues so will wage gains.

In most parts of the U.S. today, the biggest labor-market problem isn't the lack of jobs but a shortage of willing workers with the proper skills. That's a problem that much of the rest of the industrial world, with jobless rates nearly twice as high, would love to have.

So Dr. Sanity has another item to add to her list of "cross-outs," which already includes these busted economy myths:

  • The Bush Economy Is Tanking
  • Tax Cuts Preferentially Help the Rich
  • Bush Is Bankrupting the Country (see this Fox News report today for more on that)

(There is a technical error in the fine print in the WSJ's table, whose intro should read: "Comparison is from peak of business cycle through recession to 62 months after peak of business cycle.")

Cross-posted at