Alan Reynolds

My recent column predicted that "the closer we get to elections, the worse economic reporting becomes." To demonstrate how well that theory is working, we need only look at two samples of "news" from one newspaper on a single day, Oct. 15.

On that day, New York Times columnist Eduardo Porter asked "After Years of Growth, What About Workers' Share?" A table showed changes in wages and benefits as a share of GDP from 2000 to 2005 in nine countries. The author concludes, predictably, that "workers in the United States appeared to get a break for a few years in the second half of the 1990s," but "the share of the economy devoted to wages and benefits has eroded in the United States over the last five years."

In my original column, critiquing another New York Times writer for using this same statistical trick, I explained that "serious economists never compare labor's income shares to gross domestic product. GDP includes big items that are not any American's income -- notably, depreciation for wear and tear on everything from computers to highways (which rose from 11.9 percent of GDP in 1999 to 12.9 percent in 2005). The sensible practice is to examine labor compensation as a share of national income."

When wages and benefits are properly compared to national income, Porter's conclusions evaporate. Wages and benefits amounted to a slightly subpar 65 percent of national income in 2005, yet that was identical to the figure for 1999, when workers supposedly got a big break. Wages and benefits were an unusually low 64.2 percent of national income in 1995, which is the only reason Porter is able to show an increase between 1995 and 2000. In fact, real hourly compensation fell in 1993, 1994 and 1995, but rose by 1.1 percent a year from 2001 to 2005.

Leaving aside self-employment (as Porter does), labor compensation was 65.56 percent of national income from 1990 to 1999, 65.75 percent in 2000 and 65.55 percent from 2001 to 2005. The New York Times cannot possibly make political news out of statistics that barely change, so they simply replaced good sense with bad numbers.

Porter even echoed the literally unbelievable hoax that, "in real terms, the wages of non-management employees are now 10 percent below their level in the early 1970s." I called this the "wage stagnation thesis" in my new book, "Income and Wealth," and devoted a chapter to burying it.

The statistic Porter refers to, "real average gross hourly earnings," never purported to measure typical wage rates. He neglects to mention that this dubious figure was a bit higher in 2005 than in 2000, despite the oil price spike, since that contradicts his insinuations about wages falling since 2000.


Alan Reynolds

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