Rebutal to Keystone Rebutal

The union-backed Keystone Research Center issued a reply to my income vs wage commentary on their blog.

I will add a couple more thoughts:

The job growth numbers aren’t driven by people working 3 jobs whereas they previously worked 1 (as Keystone suggests), but by more people having jobs. There were 100,000 more people in 1979 than today looking for a job, but not finding one. There were also 300,000 more people in 1979 not participating in the labor force (without a job and not looking for one).

Why does this affect median wages? Consider the table below:

Every single person in this example earns more (or the same) in 2006 than in 1979. Yet because more people have jobs, the median wage—the wage of the person in the middle—hasn’t changed. The median wage of the top third rose and the middle third stayed the same—though both of these categories now include 2 people instead of 1. The median wage of the bottom third fell—even though both people in the “bottom third” of wages in 2006 were unemployed in 1979. According to Keystone, this makes them worse off.

Keystone declares that we shouldn’t have included welfare in our discussion of disposable income, because we want to “dismantle welfare”. But this dismissal makes for a poor argument.

Is Keystone arguing that A) wages are too low or B) poor people don’t have enough money to buy the things they need? Their analysis focuses on argument A – yet their prescription is more welfare; which won’t increase wages (and are likely to lower them through higher taxes).

If they want to make argument B, they need to discuss how much people earn from current welfare programs – which they fail to do. We believe higher wages, more and better jobs, and greater independence from government is the key to helping the poor, and while current welfare programs give the poor a significant amount of money – it also drains the economy and limits their economic opportunity.

For more reading on wages and income growth and inequality:

Shared Prosperity: Debunking Pessimistic Claims About Wages, Profits, and Wealth
Has U.S. Income Inequality Really Increased?
New Job Report Shows Wage Gains Are on Track
Nostalgic About 1974?