One of the most ubiquitous complaints against capitalism holds that real wages have stagnated since the 1970s. Meanwhile, CEOs such as Amazon’s Jeff Bezos earn more money than ever.
The charge surfaced as recently as the fourth Democratic presidential debate, last Tuesday. “As a result of taking away the rights of working people and organized labor, people haven’t had a raise – 90 percent of Americans have not had a raise for 40 years,” said Tom Steyer (whose earnings rank somewhat higher than average).
This dichotomy stokes our sense of moral outrage (and, were we honest, envy), especially given the behavior of certain high-profile CEOs. But this narrative is so tantalizing that few bother to ask the pivotal question: Is it true?
Are you better off than you were 4(0) years ago?
This is one of many cases in which it’s possible to lie with statistics. Even pure mathematics refuse to yield a straight answer. According to one measure of inflation, wages have only grown three percent since 1979, but using a different measure shows wages rising 15 percent.
But arithmetic does not capture the overall picture for a few reasons.
First, both measures exclude non-wage benefits like employer-provided health insurance or pension plans. These make up 31 percent of total compensation today.
But this also fails to gauge real purchasing power. The point of income is to enable consumption. By many measures, wages go a lot further today than in the last days of disco.
Proof is as close as your microwave. Madsen Pirie of the Adam Smith Institute in London explains that the microwave was patented in 1945:
Raytheon originally called their cooker a “Radarange,” and produced early models weighing 750 lb and costing $5,000 (£56,000 in today’s money). Over the years the weight and the price came down, especially after the Japanese firm Sharp entered the market in 1961. Now the table-top device is ubiquitous, used for cooking and for reheating previously cooked foods.
A microwave in 1979 cost $400 (in 2015 dollars), which took 61 hours of work at the median wage. In 2015, the microwave cost $60 and could be purchased after three hours’ work. (You can still get it at that price today on Amazon.)
The same story holds true for a wide (forgive the pun) range of household appliances. Marian Tupy of the Cato Institute found that average prices for big-ticket items fell anywhere from 53 to 96 percent. The wonder of the market lowers costs while increasing production.
Technically, wages have been nearly static by some measures, but they purchase far more – a fact not captured by raw data. Taking that into account, wage growth looks far better than the narrative would have it.
What about Bezos?
On the other hand, Amazon owner Jeff Bezos may be a multi-billionaire, but his wealth rests on a more precarious foundation than most people believe.
Make no mistake: Bezos enjoys riches beyond the reach of most human beings. Bezos edged out Bill Gates and Warren Buffet atop the just-released Forbes 400 list as the world’s richest man, with an estimated net worth of $114 billion. He’s wealthy enough that the $38 billion divorce settlement he paid this summer to his ex-wife, MacKenzie, catapulted her onto the Forbes list.
However, his wealth (and hers) exists mostly in the form of stock – specifically, stock in Amazon. As its stock price fluctuates, their wealth rises – or falls – in tandem.
There are additional troubles properly evaluating the true net wealth of stock holdings. This amusing video from the Foundation for Economic Education (FEE) illustrates some of these:
(Photo credit: thierry ehrmann. This photo has been cropped. CC BY 2.0.)