George Mason University economics professor Russ Roberts is upset about an article written in the New York Times on Tuesday about worker’s wages and productivity, two basic concepts in economics reporting.
Roberts wrote, “Let me repeat the key sentence [from the article]:
“The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation.
“That’s a very strange sentence for many reasons:
“1. Why would you use a measure of compensation that ignores benefits, an increasingly important form of compensation?
“2. Why would you use 2003 as your starting point when the recession ended in November of 2001?
“3. There are no government series that I know of on median earnings. Where did those data come from?
“There’s a chart accompanying the article. It tells the reader that the median hourly pay data are from the Economic Policy Institute. The Economic Policy Institute has a policy agenda. Their main issue is the alleged stagnant or falling standard of living of American workers. They support a higher minimum wage and the strengthening of labor unions.
“… for every year since the recession of 2001, real hourly compensation has actually increased. It’s up since 2003 as well. And this year it’s up quite dramatically…
“As I have mentioned here before–the standard claims you hear about labor’s share declining come from using wages without other forms of compensation. When you include benefits, labor’s share is virtually a constant at 70% of national income and has been steady since the end of World War II …”
Read more here.
David Altig, director of research at the Cleveland Federal Reserve, agrees with Roberts, as does Harvard University professor Greg Mankiw. However, Cal-Berkeley’s Brad DeLong calls the article “thoughtful and reliable.”
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Roberts provides an interesting critique, but I'm not sure how useful it is to include benefits in total employee compensation. If the cost to my employer of providing health insurance goes down, but the coverage provided declines, is my compensation growing or shrinking? The amount that is being spent to keep me insured -- and thus the cash cost of my compensation -- may be higher. But the benefit to me is less.