D. Dowd Muska

 

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Missing the Point on ‘Low’ Wages

January 29, 2015

Has America become a land where a prosperous few rule a pauperish throng? That’s the left’s narrative, and the latest offering in the always-flowing steam of studies that purport to prove the proposition arrives via the Alliance for a Just Society.

“Low Wage Nation” claims that “workers are not making enough to make ends meet.” Nearly “two of five existing jobs pay less than $15 an hour,” and “48 percent of projected national job openings do not pay $15 or higher.” For a single adult with two children, the “percentage of job openings that pay less than a living wage … ranges from 77 percent in Washington to 90 percent in Florida.”

Scary stats. But as with most moonbat analyses of incomes, “Low Wage Nation” exaggerates the problem, and prescribes unsound policy meds.

There are a host of methodological weaknesses with the data that suggest wage stagnation/decline, either in recent years or reaching back to the early 1970s. (One issue: Federal employees and entrepreneurs are usually excluded. Another: It’s tough to record the kind of work that never gets reported to the tax man.) Credible researchers debate the best way to measure Americans’ incomes, but few disagree that looking solely at wages is irresponsibly incomplete.

Recognizing the imperfections, perhaps the best tool to determine how a “typical” employee is faring is “Employer Costs for Employee Compensation,” published quarterly by the U.S. Department of Labor’s Bureau of Labor Statistics (BLS). In the third quarter of 2004, the average hourly compensation for a “civilian” -- i.e., non-federal -- worker was an inflation-adjusted $31.71. Ten years later, it was $31.93. Nothing to celebrate, but not a backward step, either. Take-home pay seems lower to many, because sick/vacation leave, healthcare, pension contributions, and “legally required benefits” such as Social Security and unemployment insurance grab an increasing share of total compensation. (Currently, the non-cash portion is a hefty 31.3 percent.) But is it employers’ fault that healthcare costs have skyrocketed and labor-oriented taxes have risen?

Another flaw in wage-only research is that it ignores the reality that workers live in households, and most domiciles draw resources from several springs. Additional earners, investments, 401(k)s, pensions, Social Security, Medicare, Medicaid, food stamps, housing subsidies, child-care programs, college-tuition grants, and “disability” checks make trillion-dollar contributions. Taxes are another overlooked factor. Local, state, and federal levies depress incomes, in different ways, for the wealthiest and the poorest.

In 2011, a seminal study overseen by Cornell’s Richard V. Burkhauser assessed the long-term value of paychecks, taxes, and transfer payments. The all-in calculation concluded that the “median income growth of individual Americans” was “36.7 percent over the period from 1979 and 2007.” Probably not the level of wealth-creation that was experienced in the decades immediately after World War II, but hardly a return to the era of Hoovervilles.

“Low Wage Nation” compounds its error of inadequate scope with reliance on a dodgy prediction. Citing the BLS’s estimates, the paper wails that of “the top 10 occupations with the most projected job openings, just one has a median wage greater than $15 an hour.”

Federal number-crunchers do an admirable job documenting what’s happened. Goods and services consumed, jobs lost, vehicle miles traveled -- the figures are exact, and posted online in easily accessible ways. But D.C.’s data dogs aren’t seers. The Congressional Budget Office’s long-term predictions of Washington’s fiscal health are reliably wrong, and energy prognosticators were completely blindsided by the fracking revolution. So let’s not take the BLS’s guess, which puts retail, food-preparation, cashiers, and meal-serving gigs as the jobs of the future, too seriously.

Elections will matter. With the right men and women in office, a radical shift in economic-development strategy -- the exact opposite of the Alliance for a Just Society’s predictable call for enhanced Obamanomics -- can reverse what is an unquestionably challenging employment market. Manufacturing, energy, mining, technology, and other high-compensation sectors would create more positions if freed from excessive taxes and onerous regulations. (During the second half of the Clinton administration, federal spending plummeted as a percentage of GDP, and compensation boomed.)

Employers consistently report competency deficiencies in entry-level applicants. But “Low Wage Nation” doesn’t make the case for school-choice reforms. Neither does it endorse reasonable restrictions on welfare, which would motivate millions of adults to leave the dole and develop marketable skills.

Liberal wage-watchers are right -- America can do better. But tax hikes, public “investments,” and stronger “federal and state safety nets”? We’ve been down that road. And we know where it leads.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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