How Real Wage Increases Have Been Understated
By David Henderson
Over the years, In discussing the alleged decline in real U.S. median wages, I’ve pointed out that there are two important ways in which the growth in real wages has been understated:
(1) The inflation adjustment used to compare wages over time is the Consumer Price Index. As Michael Boskin has shown, the CPI overstates the increase in the cost of living.
(2) The wage data typically exclude non-monetary benefits, one of the main ones of which is health insurance. Of course, health insurance has been getting more expensive but one reason is that we’re getting more for it.
But I had an interesting conversation with one of my favorite liberal economists (“liberal” in the statist sense of that word), Ken Judd, at Hoover a couple of weeks ago. Ken grew up on a farm in Wisconsin and worked 7 days a week from a fairly early age: milking cows, etc. This was in all types of weather: cold, heat, rain, snow, etc. But now, he pointed out, so many jobs are so much more comfortable: workers in manufacturing plants who have air conditioning, etc. This, he noted, is an increase in real wages.
Moreover, there’s been a secular decline in fatality rates on most jobs. That doesn’t get captured in wage data. In fact, all else equal, wages are lower when jobs get safer.