- The Washington Times - Wednesday, August 24, 2005

American politics in recent years, it is fair to say, has become increasingly partisan. At the same time, ideological rhetoric has become more strident, and the battle over statistics, especially economic numbers, has become particularly fierce.

Consider the highly charged topic of wages and income — and their trends. In a New York Times op-ed column last month, liberal economist Paul Krugman offered a straightforward observation: “adjusted for inflation, average weekly earnings [through June] have been flat for the past five years.” He should have added that he was talking about production and nonsupervisory workers, who comprise about 80 percent of the employed labor force. But that missing fact was not what upset Donald Luskin, who writes the normally excellent “Krugman Truth Squad” essays published by National Review Online.

Disputing Mr. Krugman’s use of the word “flat,” Mr. Luskin directed readers to a Department of Labor Web site, where data would confirm that real average weekly earnings were “up half a percent — not flat” over the last five years. Sure enough, measured in constant 1982 dollars, average weekly earnings in June 2005 ($275.12) were “half a percent” above their level ($273.67) in June 2000.

Indicative of the stridency that has enveloped the discussion of economics and politics in recent years, however, Mr. Luskin then wrote to the public editor of the New York Times demanding a correction. No correction was issued; nor should it have been. Even by Mr. Luskin’s standards, a cumulative 0.5 percent increase over five years in average real weekly earnings ought to count as flat. That represents an average annual increase of 0.1 percent, or less than $30 a year (55 cents a week) in today’s dollars. By the way, in part because July inflation exceeded nominal weekly income gains, average real weekly earnings in July 2005 ($274.89) were actually less than they were in July 2000 ($276.93).

Mr. Luskin also cited a 9.6 percent increase in per capita disposable income, a statistic he claimed was comparable to average real weekly earnings. Apart from the fact that per capita real disposable personal income increased by only 8.5 percent over the five years ending with the first quarter of 2005, the two statistics clearly are not comparable. Personal income data, for example, include wage and salary income for all workers, not just the production/nonsupervisory employees represented in the data for average weekly earnings. Personal income data also include personal rental income and personal dividend and interest income, as well as personal transfer payments such as Social Security and veterans benefits.

The absence of any growth over the last five years in real average weekly earnings for 80 percent of workers is particularly striking given the fact that productivity has been soaring. The Labor Department reports that nonfarm business productivity (output per hour of labor) has increased nearly 17 percent during the past five years ending in the second quarter of this year. Yet the cumulative increase in the average real hourly earnings of production/nonsupervisory workers has been only 2 percent, rising from $8 per hour in the second quarter of 2000 to $8.16 per hour (constant 1982 dollars) for the second quarter of 2005. (In fact, during the last two years, when nonfarm business productivity has increased by 6.6 percent, the average real hourly wage for production/nonsupervisory workers has actually declined.)

Other data indicate that incomes have stagnated for a large portion of U.S. families. For example, the median level of real household income has actually declined from a cyclical peak of $44,922 in 1999 to $43,318 in 2003, the latest year for which statistics are available. This $1,600 difference reflects a decline of 4 percent.

The fact that the U.S. economy has generated a negative growth rate over five years for real average weekly earnings of 80 percent of its workforce should be a concern shared by all people, regardless of political orientation. Expressing concern does not make one a liberal class warrior. Federal Reserve Chairman Alan Greenspan has repeatedly expressed concern in recent years, and nobody ever accused him of being a left-wing class warrior. In a subsequent editorial, we shall review Mr. Greenspan’s concerns and examine his proposed solutions.

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