Compensation includes wages and fringe benefits. For whatever it's worth, the composition of compensation going to fringe benefits has increased since 1973.

PGL: Not by much. If you include that, it adds maybe one or two thousand dollars to the median income.

That is a very impressive graph.

It was in 1965 that immigration policies were liberalized. That matches up well with the flatlining income.

Seems like pretty simple economics to me. If you have an ever expanding labor pool, the only way average income would increase is if the economy expands faster than the labor pool.

I'll hazard an initial hypothesis for folks to tear down: The combination of the influx of the Baby Boomers into the job market and the winding-down of the Vietnam War's man-power needs generated competition amongst wage-earners, and forced salaries down across the board.

I could also add that the attitude of employers towards their middle-aged employees also changed during that time, on through the '80s and '90s, particularly when you look at the growing lack of job-security starting in that era. These are the folks who, when thrown over the corporate-restructuring transom, have the most to lose. The older employees (in their 50s) may be offered buy-outs; the younger employees (under 30 or so) don't have the major investment in specific job-skills.

To motivate productive behavior, the economic gains should go to the parties most responsible for it. Increasingly, the most productive employees have been magnitutes of order more beneficial than other employees. A software engineer creating a piece of software distributes an economic benefit to millions, and should be rewarded accordingly. There was no paralel to that thirty years ago. Conversely, the manager of a grocery store hasn't become more productive; he's still just managing a grocery store. Under that backdrop, a large disparity in wealth distribution is both desirable and expected.

Despite these numbers, it's clear that people are getting wealthier. Partly it's that technology has reduced the cost of many appliances. Most people, including those below the poverty line, have large-screen color TVs with a wide selection of stations, air conditioning, microwave ovens, computers, etc. We generally take running water and indoor plumbing for granted. Home ownership is at an all-time high (as a percentage). Medical care is better than ever, due to research advances. People eat out frequently, although not necessarily gourmet style.

As to what can be done to create further imporvement, the government could reduce onerous regulations, cut back on lawsuits, and reduce personal and business taxes. These steps would lead to greater prosperity, although they might have other bad consequences.

What impresses me most is the striking difference between median wages for women compared to men. Women earn $15,000 less than men, on average! That's 62.5%. I have a hard time believing it's because women work 62.5% of the hours that men work.

Despite these numbers, it's clear that people are getting wealthier.

That's true.

KEvin-- Would you rather live now, or in 1973? Want to go back to pre-internet days? Hell, your main line of work didn't even EXIST in 1973.

"So where did all the money go? What happened in 1973 that suddenly stopped wage growth for half the population in its tracks? And what should we do about it?"

Nothing to see here. Move along. That giant sucking sound you hear is just my maid vacumning.

Does this analysis factor in the possibility of lower wage workers entering the workforce? e.g. Mexican, Indian, etc. that may be depressing the "average" wage.

Seems that the dollars earned by the upper wage tiers would be significantly driving up the average (i.e. "more millionaires and billionaires than ever" type of data) unless there was an increasing pool of low wage workers to offset.

An interesting, but perplexing piece of data, Kevin.

The entry of the large Baby Boom Generation cohort into the workforce might've reduced wage growth. And 1973 is about when they'd be hitting the workforce in large numbers. The continued post-1973 growth in female wages could, as suggested, be attributable mainly to longer average hours.
I'll also echo the prior comment about the effects of immigration.

I think the solution here is obvious - and no it is not the Kevin Drum stodge of ' thereoughtabealaw' - it's a market and net based solution. In this brave new ' Brinworld' we now find ourselves it is a simple matter to list the worlds richest people.
Then by utilizing a private version of the PAM plan ( Policy Analysis Markets) http://www.nex.com/innews.htm
we may all 'bet' small amounts on the exact time that accumulted wealth all reverts to the commonwealth. For example ' Bill Gates - November 17th @ 06:21 Norte America EST - my 2 e-dollars.
See how easy net based mutualist socialism is?
I'm working for a way to tax loud mouth blinkered political jackass's for my next trick. First grow a digital carrot...

Sparky: What impresses me most is the striking difference between median wages for women compared to men. Women earn $15,000 less than men, on average! That's 62.5%. I have a hard time believing it's because women work 62.5% of the hours that men work.

Not all work is equal. Women tend to gravitate towards occupations that pay less, such as teaching. Women also tend to take a few years off when they have children; doing so is naturally disruptive to one's career (and, therefore, salary). To get a meaningful measurement of any gender bias, one needs to stick with one occupation, and correct for women taking time off to have children.

A thought arises: is there any reasonable correlation over time between the ratio of the size of the economy divided by the size of the active workforce (E/W) and the (presumably real) wages on the chart?

Further, can that workforce be divided up into the "usual suspects" (returning Vietnam War vets, general population growth, women in the unrestricted workforce, immigrants, etc., etc.)?

Such information might go a long way towards supporting or refuting various mooted causes.

"Seems that the dollars earned by the upper wage tiers would be significantly driving up the average (i.e. "more millionaires and billionaires than ever" type of data) unless there was an increasing pool of low wage workers to offset."

It looks like this graph plots MEDIAN wages, which means half are above and half below. The actual dollar earnings of highly paid people will not drive up the median.

Actually, I would rather have lived in 1973! I was much younger and healthier back then.

Its' also because women get paid less for the same work. Los Alamos National Lab just settled a class action suit by women for $12 M. Lawrence Livermore National Lab settled one for $10 M a few years ago. Wouldn't it have been cheaper to just pay women equitably? Probably not.

penarrow, this is median income, not average. So it doesn't matter if the richest few make much more money.

Median is the number which half of the population makes more than and half makes less than.

So if 100 people are spread evenly, (one makes $1, one makes $2, one makes $3...) the median will be about $50. Now if the richest guy suddenly goes from making $100 to making $1000, he still counts as 1 person above the median. So the median will stay very close to $50.

My 20-year-old daughter doesn't want to go to college, but she is interested in a technical program to train as an electician. I have saved this graph to show her exactly who her bosses will be if she ever becomes an apprentice. These are the angry white guys who listen to Limbaugh et al.

Now you see why these guys are angry: they are the only group in our society that has really lost in these last few decades. This group tends to vote Republican because the GOP appeals to their anger, though it offers them no actual hope.

So where did all the money go?

Thats rhetorical, right? I mean where would it go? OECD tells us that the US economy is the worlds most competitive and Economy 101 tells us that raising the workers pay may be good for a number of reasons, but competitiveness isn't one of them.
I'll take a wild shot and claim that if you take out the top 10% earners across the board, the figure will become even more disturbing. Taking out the bottom 10% won't change much, though, because minimum wages is always a hot political issue.

Oh, and we ARE talking inflation-adjusted figures, right?

That is a very disturbing graph. The neo-liberal ideologues are even more disturbing. People are not becoming wealthier, they are becoming poorer. The countries that are distributing increasing weatlh to their citizens have higher taxes and more regulation.

"What happened in 1973 that suddenly stopped wage growth for half the population in its tracks?"

1973 is when the Bretton Woods system broke down, and capital was allowed to flow freely across the globe to find the best return - in other words, the beginning of globalization. The much greater mobility of capital has given those who have it and those who weild it much greater leverage over the rest of America. That continues to this day.

Kevin -

The title of the post talks about "wages," yet the graph and underlying data is "median income." The two are not the same, please correct or note that the differences are immaterial (if they are).

Important note: These numbers are worse than you think, because, largely at the instigation of Greenspan, we have been understating escalation in the cost of living for years.

It should be more of a downward trend.

Food, shelter, and essential transportation all consume a greater proportion of household income than they did in 1973.

What has offset this, to a small degree, is that credit has become easier to get, so you can buy more, but you are more in debt.

Didn't peak oil production in the US occur at about that point?

The graph suggests that we should exhume Reagan to be the President, and Bill Clinton should be appointed the Prime Minister.

Given the steep slope of the male curve up until '73 compared to the female one, perhaps the gentlemen decided to wait until the ladies caught up?

... nah...

The early 70's would be about when women started entering the workforce in greater numbers and fields. This would increase the labor supply and decrease wages (for men - for women, the opening of new, higher-paying job types would increase wages for quite a while).

It was about that time, also, that the petroleum producing countries in the Middle East started to receive a better percentage of profit from their production, which spurred them to start translating their medieval feudal states into modern corporations, which made such an extraordinary impact on the Republican corporate mind in the US.

Wow... nobody has even mentioned the 1973 oil crisis? Or the fact that US oil production peaked in 1971? Wow.

Modern american economic history can be divided into two periods: Pre-1971 when we were able to fuel our own growth with natural resources, and post-1971 when we became dependent on foreign oil, debt, and technology to fuel growth.

Look at any significant measure of US economic health and you'll see the same pattern: WWII to 1971 = wild growth, 1971 to present = relative stagnation.

JohnEvans:
The median expected salary for an Electrician III (see below) in the US is $50,275. Your daughter would do pretty well in economic terms as an electrician. And after her appreticeship and a few years experience, she can start her own company and be her own boss. The electrician who has done lots of work on our house in recent years makes a good salary, runs his own show, and gets in lots of skiing and bicycling. Could be a lot worse.

Electrician III
Inspects, repairs, installs, modifies, and maintains electrical/electronic systems, circuits and equipment. Requires a high school diploma or its equivalent with at least 5 years of experience in the field or in a related area. May have to complete an apprenticeship and/or formal training in area of specialty.

I think Tom DC/VA nailed it, and I mean that seriously.

What happened in 1973 that suddenly stopped wage growth for half the population in its tracks?

This is a lie.

The table does not show that wage growth stopped "for half the population."

It shows it stopped for half the population in that age cohort.

Ginormous differnce.

Tom DC/VA and cld nail it.

It all started with Nixon's election in '68. It's reasnable to assume that there is a lag time of 4-5 years for the economic policies of a new Repub administration to take effect.

It's been said before that the moon landings marked the peak of western civilization, they were our pyramids. Everything since has been refinement and consolodation of previous gains, and dealing with resource and environmental depletion.

There isn't going to be much more raw "quantity" gains, and when we try, the costs and "externalities" will exceed the benefits. We have to focus on gains in Quality from now on.

Very enlightening chart. I'd like to see it next to the growth of CEO pay over the same period.

In any case, what's the cause? I really have only guesses. I believe oil shocks and runaway inflation may have had an impact on growth in the 70s. Since the beginning of Reagonomics in the 80s, we have had a completely different mindset about distribution of wealth. The erosion of labor and other contributing economic factors have meant less for the little guy (i.e., most of us). Once upon a time, the Dem party used to stand up for the rest of us. The Dems really care more about business interests today, and it sure is hard to argue that that has helped the Dems from a political standpoint, but economically it sure is hard for the middle class when there's no one in government on your side.

People have pointed out various reasons that the supply of labor has increased since 1973, but I don't think anyone has mentioned one that I have often wondered about: feminism.

As women became able to compete for every job, not just a pink collar ghetto, the labor nearly doubled for those jobs.

Don't get me wrong. It's a good thing that women can work outside the home if they choose and that they can get jobs other than hairdresser or waitress. But it seems like that shift must have had some macroeconomic impact, an impact I've never seen analyzed.

Question: "Where did all the money go?"

Answer: (from the The Economist) The average salary of a Goldman-Sachs employee (including assistants and secretaries) was $520,000 in 2005. And YOU, no matter what your age, don't work there.

I see that K and Dave Alway already made the same point about women entering the work force in greater numbers around the time of the slowdown in men's wage growth.

Carry on!

Wrong link to the Economist above. Here is the correct one:
http://www.economist.com/opinion/displaystory.cfm?story_id=6855910

The question is, what could a person live like making 44k inflation adjusted dollars in 1973.. he probably could own a car, a color TV, maybe a stereophonic system, a phone, and reasonable health care. The difference is he could probably own a house, although he may choose not to, as home ownership was lower then. A person making 40k now has a car, TV, stereo, PC, home phone and cell phone, cable TV, and if his company provides it, reasonable health care. He wouldn't be able to afford a house in any of the higher density cities like SF, LA, or New York. I'm not sure if you can do a fair comparison, since most married couples are both working, so that $40k becomes $60 or 70k. Also, a person can afford more 'stuff' now, although he may not have a house to put it in.

Exogenous outward shift of female labor supply curve due to cultural changes. Plus inward-shift of aggregate semi-skilled labor demand due to automation and computerization.

What to do about it? Redistribute smartly. Two words, endless work for wonks.

And I self-nominate for comment of the year.

I'm shocked that none of the usual suspects (Al, American Hawk, et al) have simply blamed it on Roe v. Wade. Granted there's no logical connection there, but there never has to be where conservative talking points are concerned.

There was an article in JAMA recently about Americans being sicker than their European counterparts. It doesn't seem to be a far leap to suggest income insecurity leads to increased stress, which leads to poorer health. Somemone must have done a study on income security (@ same bracket) vs. health/stress level.

I'm confused.

Why is it a bad thing if men top out at a certain rate and women continue to rise? Extrapolating, looks like there's a meeting somewhere in future years at about the same level. Isn't that what any sane economic system-slash-culture would want, equality in wage earning?

Does American Hawk think before it speaks? Is it a parody or does it really think it's being intelligent?

The downturn for men in the late 1980's coincides closely with the ubiquitous adoption by industrial users of high-speed data communication technology. That more than anything else opened the door to off-shoring lots of low-level white collar jobs.

Hooray for Piehole! I'm with you. I think you are exactly right. In another 50 years, we should have parity as some women gradually move into better paying jobs.

I suspect that the greatest factor is inflation as I assume the wages are in constant dollars. The buying power in 1973 was hugely greater dollar for dollar. A nice home was $67,000 in Orange County (I bought one) but that home would sell now for $800,000. It takes a lot of wage growth to match that inflation. My first new car was a 1968 Mustang convertable. It was $3050. and my payments were $95/month for 36 months. Inflation has robbed the middle class blind.

"Its' also because women get paid less for the same work. "

I recall an interview on npr a couple years ago where some (female) economist had headed a large study controlling for everything they could think of that would reasonably lead to women being paid less (field of work, years without employment, etc) other than gender and came up with the result that women are paid 92% of what men are paid.

The average woman, of course, has a much greater difference from the average man but that is, according to this study, almost entirely because of thier different life histories rather than wage discrimination or poor negotiation.

"...almost entirely because of thier different life histories..."

Which, of course, does not at all mean that this is all by thier choice, just that only a small part of the difference is because women are less valued by employers.

Speaking of Roe v. Wade, a new (?) theory from a book says it is responsible for lower crime rates starting the late 90's.

It's a chart that shows median income for 35-44 year old men and women since the end of World War II .... What happened in 1973 that suddenly stopped wage growth for half the population in its tracks?

1. Since 1973 the workforce has become much more gender balanced. A much greater proportion of high-paying jobs are now held by women--doctors, lawyers, engineers, business executives, etc. The unfair income advantage that men used to enjoy has now been substantially reduced.

2. As Brad DeLong notes (along with most other economists), CPI-based measures of real income are seriously flawed and substantially understate economic growth. As a result of this, as DeLong writes, workers "wind up better off than CPI-based measures of real income indicate. How much is this effect worth? My guess is between half a percent and a percent a year--say ten to twenty five percent since 1979."

3. The income figures obviously do not include non-income measures of wealth, such as non-income employment benefits and the values of homes and investments.

Even ancedotally, it's hard to believe that anyone who is remotely familiar with ordinary life in America could really believe that the typical American man of 2006 is no better off materially than the typical American man of 1973. Not only do ordinary Americans today routinely possess and consume products and services of a nature and quality that were considered luxuries or near-luxuries in 1973 (frequent air travel, foreign vacations, color television [with dozens or hundreds of channels, VCRs, DVD players, etc.], microwave ovens, a vastly greater range of diet and dining choices, cars that are much safer, much more reliable, and much better equipped, etc, etc.) but they also consume many products they clearly value highly that didn't even exist in 1973--everything from cell phones to viagra.

I'm shocked that none of the usual suspects (Al, American Hawk, et al) have simply blamed it on Roe v. Wade. Granted there's no logical connection there, but there never has to be where conservative talking points are concerned.

There is a distant connection; Roe v. Wade allows mothers to murder their children, thus freeing them up to work instead of raising their babies. However, the ultimate impact is probably small enough that it's not worth mentioning. Roe v. Wade is wrong because it allows infanticide and is an egregious abuse of judicial discretion; it has nothing to do with economics.

Does American Hawk think before it speaks? Is it a parody or does it really think it's being intelligent?

I notice nobody here actually refutes or even addresses my points. They simply declare it off-bounds and unacceptable, then move on. I can't tell if y'all are unable to defend your positions, or if you're simply training to be professors.

"The difference is he could probably own a house, although he may choose not to, as home ownership was lower then."

I wonder about this.

It seems to me that the definition of "ownership" is used rather loosely by the US government with regard to homes. If a person is in the early years of a 30 year mortguage with 10% equity they are counted as 1 homeowner. Seems to me they ought to be counted as .1 home owners.

Is seems possible that home ownership could be hugely overstated today. I have heard that back then most people would eventually pay off thier mortguage and continue to live in their home for many more years while today far fewer people ever own a home without a mortguage. In effect many 'home owners' might really be renting thier houses from the bank.

Why would anyone have a graph that denotes men's earnings in pink and women's earnings in blue?

Have you no respect for traditition?

I think this is the well known fact, that the rich are getting richer and the gap between the rich and poor is ever widening that accounts for what occurred.
i.e. the creation of more high individual incomes at one end of the scale and more low incomes atthe other.

The proportion of men earning more than 50K grew from 12.8% to 16.5% between 1975 and 1995. But, overall, the median income for men dropped from 24K to 22K due to declining wages in the bottom tiers.

In the 60s, CEO salaries were 30X greater than the average worker; now their salaries are 200X greater.

More women entered the work force, at low paying jobs..subsequent to the 1964 Civil Rights Act where affirmative action for white females made it possible for them to find jobs.

Women making up a larger percent of the work force had a wage lowering impact on median wages nationally.

In 1960 women earned 35% of bacherlor degrees. They now account for over half, 55%

Immigrants from India have an average income of 44K a year,those from the Phillipines 43K and those from China 36K. Immigrants make more than Americans of English (34k), Swedish (33K) and Irish (31K) ancestry who have been here for several generations.
What does this tell us about the changing contours of our society

But the real answer to your bottomline question Kevin is this:
The wage gap of our time reflects both the declining fortunes of many Americans and the rise of individuals and households who have profitted fromreent trends. Economists, generally agree on what brought about atatic wages and lowered living standards.
In part, wellpaying jobs are scarcer because goods that were once produced here, at American wage scales, are now made abroad and then shipped here for sale.

A corollary cause has been the erosion of labor unions, which one safeguared generous wages for their members. Between 1970 and 1996, the portion of the workforce represented by unions fellfrom27% to 15%.

Today, the moast highly organized occupations are on public payrolls, notably teachers and postal employees. Only 11% of workers in the private sector belong to unions. For most of the other 89%this means that their currrent paychecks are smaller than they were in the past.

Let's not forget the downsizing of corporate America as well. In 1973, the 500 largest industrial firms employed some15.5 million men and women. By 1993, these firms employed only 11.5 million people. This reduction in the industrial workfores amount to a loss of 4M positions.

This data is excerpt from Andrew Hackers book Money (who has how much and why)

The buying power in 1973 was hugely greater dollar for dollar. A nice home was $67,000 in Orange County (I bought one) but that home would sell now for $800,000. It takes a lot of wage growth to match that inflation.

According to the National Association of Homebuilders, the average home size in the United States is now 2,200 square feet. In 1970, it was only 1,400 square feet. And I bet a much higher proportion of homes today also have many other desirable features, like central heating and cooling. This obviously conflicts with the claim that housing is less affordable now than it was in 1973.

jefff:

I disagree. And so does Media Matters. See comments on their website from May 16, 2006.
http://mediamatters.org/items/200605160002?offset=20&show=1
They provide links to the data.
The gender gap in wages still persists when work experience, hours worked, etc are taken into account. Even in the same jobs, men earn more than women.

"This obviously conflicts with the claim that housing is less affordable now than it was in 1973."

Actually this partially explains why housing is less affordable now than it was in 1973, it does not conflict with the claim.

Another interesting thought I picked up somewhere. Some of the increase in family income inequality is due to women's equality. In the olden days when women were not educated often, and were very rarely working in highly paid fields men with high incomes and valulable skills primarily married women with low incomes and few marketable skills. Today many more of our more highly paid workers are marrying other highly paid workers making doubly relatively highly paid households, and somewhere leaving a doubly relatively poorly paid household.

It's all went south when we went off the gold standard! ;)

America's postwar upsurge lasted barely 3decades. The tidebegan to turn in the eary 70s. Between 1970 and 1980, family incomerose less than 7%. And that small increase resulted entirely fromthe the factthat additional family members were joining the workforce. The most vivid evidence of decline is found in the unremitting drop in men's earnings since 1970.

Averages and medians,conceal important variations, such as that some American households have done quite well for themselves. Those with incomes of $1M or or more reached an all-time high during the closing decades of the last century, as are families and individuals making over 100K.

By outward appearances, there is still pleanty of money around, it is landing in fewer hands.

Andrew Hacker...Money

"jefff:

I disagree. And so does Media Matters. See comments on their website from May 16, 2006.
http://mediamatters.org/items/200605160002?offset=20&show=1
They provide links to the data.
The gender gap in wages still persists when work experience, hours worked, etc are taken into account. Even in the same jobs, men earn more than women. "

I did not say that there was no gap (which is what the talking head that media matters debunks said), I said that according to some economist I can't even point to (heh) it was around 8% when controlled for many contributing factors.

If you look at some of the data presented in the article to which you linked according to its captions none of them purport to control for anything but years of experience and/or general field of work, and even so many of them are around 80% of parity. Other major factors included specific job (are you an accountant for a school, or on wall street), continuity of work experience (did you stop working for any period of time, or change jobs more or less frequently), educational differences, and more.

You live in California, don't you Kevin? Why does your post say 6:01pm when my clock says it's only 5pm?

I am puzzled by "half" of the population. Does that mean for male workers and not for female workers ? More than half of the labor force is male, while the labor force is about half of the population. My first guess is that it is based on the use of a median.

Indeed the graph shows that, in some sense, the labor income of the half of male workers with lower labor income has stagnated (or declined). Only in some sense since they are not the same guys but rather the standard Joe Sixpack and the less fortunate Joe fivepack etc. Average labor income per worker has gone up a lot so clearly people in the upper tail have had much more income growth.

It is actually important to realise that this happens to be true of the extreme upper tail of the distribution of labor income, and also that in the 0's there has been a significant decline in the labor's share of national income. Thus wage stagnation is an experience of much more than half of male workers (goes up well past Joe 2 six packs IIRC).

Lots of guesses up there and I won't add to them. What I want to know is whether the information in the graph will be made "public" by our custodians of discourse (MSM)?

Hedley-- It's already in the NY Times, just without enough democrat talking points to suit a former Clinton administration official. What more do you want?

I agree with david, it's probably the 1973 oil crisis, and in conjunction with Bretton Woods, as someone else said. The recession, stagflation... Wages never recovered because corporate America's culture had changed when the dust had settled. Corporate America discovered its power to treat workers like crap, something that had previously been socially and morally unacceptable to the generations that went through the shared sacrifice of WW II and the socially leveling effects of the Great Depression. Also I'll bet that unions caught a lot of flack as something unpatriotic at this time by employers eager to use the recession as leverage to weaken them, but I'm just guessing, because the groundwork must have been laid at some point for Reagan to crap all over the air traffic controllers in the 1980s and have public support for it, and it seems reasonable to imagine it was during this period. Have a graph of union membership, Kevin?

That would suggest to me that strengthening unions and reversing cultural attitudes to them would reverse the decline in wages. But now that capital is so mobile as someone said, it's tricky, because companies can just set up shop in some other country. So I guess tariffs on goods imported from countries that don't allow unionization are the best answer I can think of.

I wonder what the graph would look like if it went back further.

I often get the feeling that the wierd time was those few decades after WW2 when the government was giving a free college education to nearly every male citizen who was interested (for service in ww2), taxes were very progressive, and a bunch of brand new infrastructure from the war and depression projects was giving all its benefits and not yet reqiring any major maintenence and the automobile was giving a great degree of mobility, but had not yet converted most of the country into hideously inefficient sprawl.

So the question isn't just what happened in 1972 and the followind decades, but what stopped happening.

The average 40-year-old guy made $44,000 in 1973, and that was as good as it ever got. Today that number is about $40,000. It's gone down even though the American economy has nearly doubled on a per-person basis during that time.

Really, you should get this formulation right. It's not the AVERAGE 40 year old guy, but the MEDIAN 40 year old guy who's losing ground. I'd expect that the average 40 year old guy is doing just fine. (Yeah, maybe you could make a case that the "average 40 year old guy", in this context kind of means the median 40 year old guy, but you're only inviting confusion with the chosen verbiage).

Hmmm '73 I remember... I was entering the workforce then.

1) Mid 70's... the flood of cheap foreign imports began to really kick in. Foreign made cars, steel, appliances, (yada) replaced American manufactured goods. People began buying Toyota and Honda instead of Ford and Chevy. Philco was replaced by Sony.

2) In response to low-wage foreign competition american companies either a) moved manufacturing overseas, b)closed (the rust belt) or c) automated, which further reduced demand for workers.

3) With the tide of imports and under pressure from automation, the power of the unions in the US manufacturing base began to rapidly erode. Without union protection, the balance of power shifted to the multi-national corporations.

4) At the same time, feminisim saw increasing numbers of women entering the workforce just a as manufacturing jobs began leaving.

5) The environmental movement and it's associated regulations increased costs for american manufacturing.

Combine the above, and the base of high-paying jobs for 'ordinary folk' was pretty well doomed.

THE REGRESSIVE-DEMOCRATS COUNTER-CULTURE (DEBAUCHERY AND DRUGS) LIFESTYLE ADVOCACY AND "GREAT SOCIETY" PROGRAM BEGAN TO HAVE IT'S EFFECT ON THE MOST VULNERABLE AMONGST US; THE LOWER INCOME AMERICAN WORKFORCE WAS OBLITERATED IN TERMS OF CHARACTER AND QUALITY OF LABOR, CUMMULATIVELY AND STATISTICALLY SPEAKING, LEAVING STONED, SEX OBSESSED HIPSTERS IN IT'S PLACE. IF YOU WANT TO EXPLAIN WAGES SINCE 1973, JUST ASK YOURSELF, WHY WOULD YOU PAY MORE FOR LESS?

TOH

Lot of good comments here. I feel that we are all like blind men confronted by an elephant, each of us describing a different body part but not yet seeing the whole ;-)

I do think we have a real problem and that people are starting to suffer. By accepted measurements of wealth inequality, the US approaches the inequality of a third world nation. I think most people haven't noticed due to a combination of successful propaganda (such as "wage growth equals inflation!"), new tactics (in most families all adult members of the household now work), and that we are so well off compared to so many. But that won't carry us any more. When a health insurance company executive gets 1.6 billion (yes billion) dollars in compensation when many people can't pay for health insurance, we have a legitimate problem.

I don't believe that this trend is an accident of any sort, but is a long term strategy by the wealthiest (and most powerful) members of our society. Taxes have, since the 60's, been lowered for the rich and increased for the poor and middle class. Government has been starved meaning that we are paying more in non-tax forms, such as paying a fee to use a state park or hike in a National Forest.

I believe we are going to have to go back towards the tax structure of the 60's and 70's and reduce taxes on the middle class while dramatically increasing taxes on unearned income and corporate income. We will also have to reduce our trade deficit by increasing tariffs on goods from countries that abuse their workers (i.e., China) so that our workers are given a fair shake. We need to go back to that economic policies that made us great: I can't remember who said it, but one of our early government officials once said something like, "I'd rather spend $25/ton for American steel even when I can get it for $20/ton from Britain because that is $25 that will stay in America".

I've always wondered about 1972. It seems to have been a pivitol year for America. We know it was the year of peak oil for the US, the end of the gold standard and the break down of Bretton Woods. I don't think it's a conicidence that wages peaked (and they really just stopped dead, no gradual slowdown) that year as well. What else happened that year?

Lucky for me I was born the same year as the end of American's golden years =(

A lot of factors have contributed to these trends. Among them is certainly the increasing numbers of women entering the workforce for career purposes since the early 1970s. Compare this to the much smaller numbers of career women before then, and you have a major change in the number of working women, the nature of jobs being held by women, and the median compensation received by women.

What happens when you increase the supply of something (like career labor, here)? You reduce the price of it (salary and wages, here). Women's compensation can continue to rise because of their expanding participation the labor force, particularly in better paying career jobs. But it comes at the expense of men's opportunity for growth in compensation, because of the increased competition for jobs. It has probably also tended to hold down the level of investment in technology below the level that would otherwise have occurred, because with more available workers there is reduced demand for productivity-enhancing technology as a substitute for labor.

When men and women have similar desires to hold down careers, we can't be too surprised that it then takes two careers in a family to maintain a middle class standard of living. And we shouldn't be surprised that the desire of women to compete equally with men in the workforce shows up in a reduced level of compensation for men. These results were almost unavoidable, since economic theory is really a good description of the evolution of economic systems over time.

No, I'm not an economist. Just a physicist turned business owner, who then learned that economic theory is for real.

I am in general agreement with the oil embargo/Bretton Woods theories as being key to understanding the decline of the American middle class.

And this may seem off-the-wall to many of you, but I believe that Watergate played a part as well. For it was ultimately the economic power and political awareness of the American middle class that drove Richard Nixon from office. No sooner then had Nixon resigned, the mandarins were determined that something like that must never happen again, and this meant that the power of the middle class had to be broken. Call me crazy, but...

jefff,

Actually this partially explains why housing is less affordable now than it was in 1973, it does not conflict with the claim.

Huh? If housing is less affordable now than it was in 1973, how do people afford to live in much bigger houses now than they did in 1973?

I seem to recall that Nixon took the trade dollar off the gold standard in 1973 (or was it 1972?) Going from a specie currency to a fiat currency would most likely account for a large part of the wage stagnation.

There was a terrible recession in 1973, partly due to the Arab oil embargo, right? The stock market went down to 735 or something awful like that. It's gone up and up and up ever since. But that's interesting, that the stock market has grown enormously, but income hasn't.

But let's face it-- we didn't all have two cars per family, and we didn't go out to dinner twice a week. I suspect that the "average" income includes both much better off upper middle class types, and much worse off working class types.

Then again, I remember senior partners in even small lawfirms earned $400K a year-- and few of them do now. And doctors used to earn better livings too, from what I can tell.

If housing is less affordable now than it was in 1973, how do people afford to live in much bigger houses now than they did in 1973?

For one thing people had savings, as opposed to massive debt. Also, most homes at that date could still be supported by one person working full-time, with maybe a little extra money brought in by the spouse. Also, it was a lower percentage of household income.

Then too, it was itself a form of real savings since a much higher equity requirement existed. If a calamity struck the family, you could always sell the house and have resources left.

Also, the much bigger houses are often made of crap.

A couple of ways people could afford bigger houses w/o being wealthier is that houses can be built for less (productivity gains) or the purchaser can chose to spend a greater % of their income on their house.

Comparing house size over time is not likely a good measurement of wealth.

AdventureGeek says:

I've always wondered about 1972. It seems to have been a pivitol year for America. We know it was the year of peak oil for the US, the end of the gold standard and the break down of Bretton Woods. I don't think it's a conicidence that wages peaked (and they really just stopped dead, no gradual slowdown) that year as well. What else happened that year?

Didn't the gang that's in the white house get their start under Nixon about then? They got the ball and ran with it.

I was 25 in 72 and I'd say you've 'bout nailed it.

America's postwar upsurge lasted barely 3decades. The tidebegan to turn in the eary 70s. Between 1970 and 1980, family incomerose less than 7%.

Do you just uncritically accept and regurgitate everything you read?

From the Census Bureau's Historical Income Tables - Families:

Median real family income, 1970: $41,568

Median real family income, 1980: $45,647

Real dollar increase between 1970 and 1980: $4,079

Percentage increase between 1970 and 1980: 9.8%

And that small increase resulted entirely fromthe the factthat additional family members were joining the workforce.

This seems highly unlikely. Please substantiate this claim.

The most vivid evidence of decline is found in the unremitting drop in men's earnings since 1970.

Median real income for men has not declined. It has remained more or less constant as measured by the CPI. But as I said earlier, the CPI substantially understates economic growth. Brad DeLong estimates that true real incomes have increased by 10-25% more since the late 1970s than the CPI-adjusted figures.

By outward appearances, there is still pleanty of money around, it is landing in fewer hands.

No, the basic picture is that almost everyone has gotten wealthier, but that the rate of increase in wealth has been higher for richer Americans than for poorer ones. The pie is sliced more unequally than it was, but it's also a much bigger pie, and almost everyone's slice is bigger than it was.

Incidentally, the biggest increase in economic inequality of the past 30 years occurred during Clinton's presidency.

"The buying power in 1973 was hugely greater dollar for dollar. A nice home was $67,000 in Orange County (I bought one) but that home would sell now for $800,000. It takes a lot of wage growth to match that inflation.

According to the National Association of Homebuilders, the average home size in the United States is now 2,200 square feet. In 1970, it was only 1,400 square feet. And I bet a much higher proportion of homes today also have many other desirable features, like central heating and cooling. This obviously conflicts with the claim that housing is less affordable now than it was in 1973.

Posted by: GOP "

That may be averages but I'm talking about specifics. The house is on a 1/2 acre of Mission Viejo and had about 2800 square feet. My previous house was in South Pasadena and I sold it for $36,000 in 1973. About 12 years ago a friend gave me a brochure from an open house. It was for sale for $895,000. It was 1500 square feet on a lot 50 x 100. The difference was the proximity to downtown LA.

Inflation is a terrible tax on kids. Those of us who owned houses when it began, made out but many did not. We are getting back into an inflationary cycle.

OK, I understand most, but why do females have the pointy tops and men are square heads? What? Flat tops are in style again.

"Incidentally, the biggest increase in economic inequality of the past 30 years occurred during Clinton's presidency."

Some data please.

For one thing people had savings, as opposed to massive debt. Also, most homes at that date could still be supported by one person working full-time, with maybe a little extra money brought in by the spouse. Also, it was a lower percentage of household income.

Do you have any actual evidence for any of these claims? According to this press release from the National Association of Realtors, the Housing Affordability Index reached a 30-year high in 2003. And as I said earlier, homes have also been getting bigger.

Productivity is the underlying guide to a worker's worth. If pay does not stay in line there are factors affecting such. The legal and the power or generality of unions may have also affected the same.

The easy conclusion is that there are too many workers. That's why the right trolls say Europe has too few. From a business point of view, if there is an over-supply of skilled, even graduate or post-graduate workers, all the better. Lower employee costs. Even the benefits, such as pensions or health care, can be degraded.

For women, there would have been a gap to close as they adanced form unskilled work, through semi-skilled work to the present. Now they are more than 50% of undergraduates. We can argue abour what work they get into but we can't argue about peer to peer. Off the top of my head, women's pay is still 70-75% of men's pay for substantially the same work.

I am no longer married. Wouldn't it be a counter balance if, when a woman gives up time to give birth and raise a child, they don't totally sacrifice their career? As a man, would you do the same?

Kevin: Could you weigh in here with your source for this graph? I could spend hours looking for it or you could tell us where you got it. Lots of speculation going on here...

Where all the money goes: we already know that it goes to the top few percentiles, who can leverage more and more due to Repiglican policy shifts. Some of that is the "financialization" of the American economy. As for people really being better off than the chart implies, as claimed by GOP et al, note that much of that is due to both spouses working! Income per hour has stagnated, or fallen, so if both spouses work (as now usually the case) then the couple's standard of living is comparable to what a man could bring home to a wife in the '70s. (Hence apologists like GOP for the trickle-up shakedown can seem superficially to be right, as often their tack.)

BTW, any such chart should show hourly or equivalent income, so we can see what we get per hour of work.

No, the basic picture is that almost everyone has gotten wealthier, but that the rate of increase in wealth has been higher for richer Americans than for poorer ones. The pie is sliced more unequally than it was, but it's also a much bigger pie, and almost everyone's slice is bigger than it was.

Incidentally, the biggest increase in economic inequality of the past 30 years occurred during Clinton's presidency.

Posted by: GOP on May 26, 2006 at 9:42 PM

This is completely inaccurate. Everyone has NOT gotten richer. The rich have become richer and the poor have become poorer.

In 1979,13,505 individuals or families earned the equivalent of $1M dollars a year. Only 15 years later in 1994, thatnumber hadjumped to 68,064.

The pie did not get bigger.

Point of fact, In 1970, America ranked first in per capita output, the nearest rivals were Sweden, Canada, Denmark and Switzerland. The per capita figures in 1994 showed dramatic changes. The USA fell to fifth place, behind Switzerland, Japan, Denmark and Norway. More striking is that between 1970 and 1994, Italy, Japan and Austria all doubled their per capita production.

America is the world's largest market,measured by the amount of money available for shopping, and if that purchasing power is the criteria, we have the highest living standard. But being the leader in consumption does not create national wealth nor the prospect of a prosperous future. America is no longer first and is unlikely to regain its primacy.

There was a huge technology shift in 1979 that no one here has even mentioned - the invention of the spreadsheet. This allows the folks at the top to run the numbers and see how much more money they get if they don't give the workers a pay raise. Or if they lay them off. Or hire temporaries instead of permanent employees. The huge mergers and aquisitions followed by layoffs - busting out companies - trend of the 80s had its roots in the rising of the spreadsheet toting consultant class.

The spreadsheet allows a manager to privately work out the numbers. The IT department doesn't have to run a report. Justifications can be made later.

Spreadsheets have made a huge difference in the ways companies are run. No one seems to notice this, or make changes in corporate taxation and employment law to reflect this new environment.

Huh? If housing is less affordable now than it was in 1973, how do people afford to live in much bigger houses now than they did in 1973?

Posted by: GOP on May 26, 2006 at 9:17 PM

The usual appeal to the lowest common dittomenator. The loose use of "people" here as a generalization holding no subcategories is neccessary to cover up the disparity between sectors. Because of money being funneled to the top, maybe half the population can afford bigger (not neccessarily better quality) houses than average in the past, while the rest struggle to get any, or to find an apartment, and more and more at the lower end can't even do that.

Some data please.

See, for example, the Census Bureau's Historical Income Tables - Households. Between 1993 and 2001 (Clinton's term as president), mean household income for the lowest quintile increased by about $3,000. Mean household income for the highest quintile increased by a whopping $44,000. And for the highest five percent, by a staggering $86,000.

And that's just income. Non-income increases in wealth (mainly, the appreciation of assets like real estate and stocks) increased the disparity between rich and poor in America even more.

If you can find a greater increase in economic inequality under any other president of the last half century, in either absolute or percentage terms, please show it to me.

One of Clinton's primary economic legacies was a massive increase in the gap between rich and poor in America.

I checked history in http://www.brainyhistory.com/years/1973.html for causes of male menapause. Some possible 1973 events:

Roe vs Wade: U.S. Supreme Court legalizes some abortions Woman, the poor things, had to go to work.

George Steinbrenner III buys Yankees from CBS for $12 million Very significant!

British Darts Organisation founded in North London. Chaos theory says this might be the cause.

Tap dancer Ray Castle measured at 1440 taps/min on BBC TV. Demonstrating the men had reached their peak.

Mushtaq Mohammad follows up 201 to take 5-49 vs. NZ Dunedin. The last time an Islamic won anyting in sports? Was this a sport?

U.S. dollar devalues 10 percent. Men finally gave up working.

Pope Paul VI publishes constitution motu proprio Quo aptius. And Latin finally died.

Dean tells Nixon, "There is a cancer growing on the Presidency". Nixon had his moles checked.

Indies troops invade Sikkim. Who were the Indies and what is Sikkim?

Netherlands recognizes North Vietnam. Finally they found the little place.

Ernie Banks fills in for Cubs mgr Whitey Lockman who is ejected during the game, thus technically becoming baseball's 1st black manager. Lower wage black people take control.

Thomas Bradley elected 1st black mayor of Los Angeles, California. Good God! More black people.

John W Dean tells Watergate Committee about Nixon's "enemies list" . The entire male population surrenders to police.

1st U.S. - China basketball game, U.S. collegiates beats Shanghai 96-61. China finally gives up on sports and decides to make widgets.

1st all - U.S. women's Wimbledon, Billie Jean King beats Chris Evert. Lesbos advance.

Bahamas declares Independence from U.K. and adopts constitution. Finally, a tax haven.

Billy Martin fired as manager of Tigers. Billy's first career move.

"...people have got to know whether or not their President is a crook. Well, I'm not a crook". Nixon reveals true identity.

President Nixon's attorney, J Fred Buzhardt, reveals presence of 18 minute gap in a White House tape recording related to Watergate. Failure of American consumer products?

US Psychiatrist say homosexuals are not mentally ill. Gays discover they are just wierd.

"Exorcist," starring Linda Blair and rated X, premieres. Sticking a cross in your croch only worth one X.

From the Census Bureau's Historical Income Tables - Families:

Median real family income, 1970: $41,568

Median real family income, 1980: $45,647

Real dollar increase between 1970 and 1980: $4,079

Percentage increase between 1970 and 1980: 9.8%

Posted by: GOP on May 26, 2006

Income and Earnings: 1950-95 (in 95 dollars) from Census Bureau

Median Family Income .....Change During Decade
1950 21, 069

1960 28, 926 +37.3%

1970 36,410 +25.9%

1980 38,930 +6.9%

1990 41,223 +5.9%

1995 40,611 -1.5%

Earnings of Men (35-44)

1950 20,656

1960 28,457 +37.8%

1970 37,164 +30.6%

1980 37,046 -0.3%

1990 34,704 -6.3%

1995 31,420 -9.5%

August 15, 1971. President Nixon imposed wage and price controls, lasting 1,000 days in three phases.

Anybody mention this?

This is completely inaccurate. Everyone has NOT gotten richer. The rich have become richer and the poor have become poorer.

No, the poor have NOT gotten poorer, they've gotten richer. See the income data I have linked to for details (which understates true increases in wealth, anyway). Obviously, this doesn't mean that every single member of the population has gotten richer. It means that, in general, poorer Americans are richer than they used to be.

In 1979,13,505 individuals or families earned the equivalent of $1M dollars a year. Only 15 years later in 1994, thatnumber hadjumped to 68,064.

I have no idea how you think this claim, even if it's true (you provide nothing to substantiate it) supports your claim that the poor have become poorer.

The pie did not get bigger.

The pie has most definitely gotten much bigger. U.S. GDP today is far bigger than it was in the 1970s and 1980s.

Point of fact, In 1970, America ranked first in per capita output, the nearest rivals were Sweden, Canada, Denmark and Switzerland. The per capita figures in 1994 showed dramatic changes.

Per capita output of what? The measurement of a country's production of wealth is GDP - Gross Domestic Product. GDP is a measure of the total value of goods and services produced by an economy. Whatever "output" you're referring to, it's not the right measure.

America is the world's largest market,measured by the amount of money available for shopping, and if that purchasing power is the criteria, we have the highest living standard. But being the leader in consumption does not create national wealth nor the prospect of a prosperous future. America is no longer first and is unlikely to regain its primacy.

America's GDP (production of wealth) is by far the largest in the world. No other country even comes close. And its per capita GDP is routinely amoung the highest in the world, consistently higher than that of all other major first-world nations, and exceeded only by small countries in niche economic positions, like the tiny banking principality of Luxembourg or the (temporarily) oil-rich Norway.

Sparky --
No sparks. Click the graph. Don't blush!

elrapier,

If there is a point to your post of 10:29pm, I have no idea what it's supposed to be.

You claimed: "Between 1970 and 1980, family incomerose less than 7%." In response, I linked to and quoted Census Bureau data showing that median real family income increased by almost 10% between 1970 and 1980.

Where does your "less than 7%" figure come from?

And Arthur Burns, and incredible dumbshit central banker, finally discovers that inflation is a monetary thing.

From:

http://www.econreview.com/events/wageprice1971b.htm

"While there were skeptics in August, 1971, there were a great many who thought "temporary" wage and price controls could cure inflation. By 1974, this notion was thoroughly discredited, and attention gradually turned toward a monetary approach to inflation. In a complete reversal, the policy to curb inflation in now thought to be an increase in interest rates rather than an attempt to hold them down."

Because of money being funneled to the top, maybe half the population can afford bigger (not neccessarily better quality) houses than average in the past, while the rest struggle to get any, or to find an apartment, and more and more at the lower end can't even do that.

Well, as you say, maybe. But unless you can provide some actual evidence showing that housing is less affordable for those below average (below average what? Wages? Incomes? Assets?), that's all it is--a "maybe."

KEVIN: WHY 1973? GREAT QUESTION By chance, I happened to be pondering this the last few days.

I highly recommend you invite a few guest economists to weigh in. Brad De Long, Galbraith, Dean Baker, Krugman???

My understanding is that the US economy was surging post WWII. More for everyone. We were the big dog. It was a time of great expansion as we built out suburbs at home and helped rebuild Europe and Japan. At the same time, since the New Deal, American unions had made a deal with business to protect wages, seniority, pensions, provide healthcare, etc. and in turn the unions agreed not to interfere in the larger questions of governance and regulating the corporate economy (in contrast to European unions). But around 1973, the economy went stagnant as globalization began the leveling of the American surge. Unions began to lose bargaining power while manufacturing fled to other countries. That would be my guess for the core problem: the End of the Red Hot Economy as the rest of the world rose up. Perhaps the oil crises also contributed. I would reject either foreign workers or increased women in the workforce as explanations.

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