The Myth of the Median Worker
By Arnold Kling
Russ Roberts continues to engage with Tyler Cowen on whether there has been stagnation.
A lot of the argument is over what has happened to the median worker. But that may not be a useful construct.
Let us continue to think through what I call the myth of the macroeconomy. Suppose that instead of thinking in terms of homogeneous workers and consumers, we treat heterogeneity as important.
Think of the economy as consisting of lots of escalators. Some are headed up, and some are headed down. If you are a student in computer science at Stanford, your escalator is racing up (and you already may be pretty high). If you do work that can be replaced cheaply by machines or by foreign labor, your escalator is going down.
Some of the people have ridden the down escalators close to the bottom, in the sense that they will never again be employed in a job that they consider worthy of their dignity. The same thing happened in the 1930s. Then, there were Bonus Marchers. Today, there are Occupy Wall Streeters. (Maybe trying to draw a parallel is a stretch.)
People have some ability to switch escalators, but that ability is limited. To get onto an up escalator, you need to acquire better human capital, physical capital, or organizational capital. I am not sure that has ever happened. Between 1930 and 1950, a lot of the least-educated workers aged out of the labor pool and were replaced by a more modern work force.
There is no doubt that people riding a down escalator are sensing a threat to their relative status. However, setting this aside for the moment, I am inclined to give Russ the point that someone lower down in the income distribution has it better today than thirty years ago. The prices that have gone up the most are for private education and non-acute health care, which I would argue are status goods, not necessities. I suspect that if we measure how far a worker’s income goes in providing food, clothing, shelter, and basic durable goods, we would see a notable improvement, even for those who have been riding down escalators.
People who have ridden the escalators up enjoy more confidence in their economic status. They have financial assets. Their human capital is valuable. They can send their children to private schools and expensive colleges. They can afford to have all of their ailments looked into, not just get medical care when they break a bone or have a heart attack.
Tyler wants to raise a challenging hypothetical. Suppose that economic growth had been as strong in the past thirty years as in the previous thirty years. How much better off would we find the typical worker? This question is hard enough to answer with aggregate data. If you agree with me that the concept of a typical worker is part of the myth of the macroeconomy, the question becomes even more difficult to answer.