Stagnant Middle Class

Perhaps this is simply a myth.

Don Boudreaux and Mark Perry weigh in over at the Wall Street Journal:

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.

Don and Mark touch on a point that I often make:

…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.

That’s not an insignificant amount.  I often hear that compensation for health care shouldn’t count, after all, why should the worker have to accept ever increasing costs of fixing a broken leg?  A response to which I ask, “Would you be willing to give up that health insurance?”

Always the answer is no.

However, they point out a concept that I often miss:

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.

I absolutely think it’s critical to include in these conversations what we are able to consume today as opposed to 30 years ago.

Finally:

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.

4 responses to “Stagnant Middle Class

  1. The problem is a huge chunk of the population get no benefits, and for them its been a double whammy. Moreover, the cost of benefits thirty years ago, especially health insurance, was a fraction of what it is today. Face it – there has been a real and pronounced statistically proven shift of income from the middle and lower class to the very top. Moreover, the cost of employee share of benefits is for health insurance often greater than the cost of full coverage two or three decades ago. If you add in the cost of benefits the trend remains the same – and in fact middle class families often need two earners to keep up.

    • The problem is a huge chunk of the population get no benefits, and for them its been a double whammy.

      Which chunk?

      Moreover, the cost of benefits thirty years ago, especially health insurance, was a fraction of what it is today.

      Right. So the increased cost of that insurance is compensation increase.

      Face it – there has been a real and pronounced statistically proven shift of income from the middle and lower class to the very top.

      I’m not sure which metric you would use to prove that. Is it “household” as defined by the IRS and stuff?

      If you add in the cost of benefits the trend remains the same – and in fact middle class families often need two earners to keep up.

      I might suggest that is due to the fact that families have more “stuff”.

  2. Oh, and you also have to take into account the cost of benefits in the past. There used to (in the sixties and into the seventies) be non-taxable benefits like a company car, country club membership and things like that which now are taxed. So I’m not sure what total percentage from now tells us alone anyway.

    I do think cheap Chinese goods has made it possible for the middle class and poor to consume as much as in the past. But that doesn’t change the fact that wealth is increasingly in the hands of the elite and class divisions have grown in our society to a point that I think a political backlash has started.

    • But that doesn’t change the fact that wealth is increasingly in the hands of the elite

      I know that the two are linked, but the claim that the Middle Class has stagnated isn’t true; they have increased their levels of compensation dramatically.

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