Division of Labour: Earnings: the headlines versus the story

May 27, 2007

Earnings: the headlines versus the story

You may have seen the headlines, based on a recent report: “US Men earn less than their fathers” (Columbus Dispatch); “Men in their 30s making less than dads did” (Houston Chronicle); “Wages Through the Ages: Men Earn Less than Fathers at Same Age” (ABC News); “Making less than dad did” (CNNMoney.com); “Dad was better off than we were” (St. Petersburg Times); “Men in their 30s lag behind their fathers in pay” (St. Louis Post-Dispatch).

The report, "Economic Mobility: Is the American Dream Alive and Well?," was principally authored by John Morton and Isabel Sawhill, and issued by the Economic Mobility Project, a joint project of the Pew Charitable Trusts, the Brookings Institution, the Heritage Foundation, the American Enterprise Institute and the Urban Institute.

Trouble is, all of these headlines seriously misrepresent the report. The report found that, adjusting for inflation, the median male US wage-earner in his 30s today earns less pay (benefits were excluded) than the median male wage-earner in his thirties did a generation ago. But it didn’t track fathers and sons. The US labor force has new entrants – immigrants -- whose fathers were not in the US labor force. Low-earning immigrants may all be earning more than their fathers did back in the old country, and native born workers may also all be earning more then their fathers did in the US, and yet the US median may still be lower than a generation ago.

The last paragraph of one version of the story, by Wall St. Journal reporter Greg Ip, offered just such an attempt to explain the findings by reference to immigration:

Bill Beach of the Heritage Foundation said increased immigration also could have pulled down median wages, as most immigrants at first earn less than native-born workers.

I don’t know how much of decline in median pay is actually explained by immigration. But I do know that unless immigrants are excluded, findings on median US male earners thirty years apart are not really about earners from the same families. Too bad the eager headline writers didn’t read to the end of the story and realize that the report doesn’t really make any claims about father-son pairs.

ADDENDUM: Comments are open.

Posted by Lawrence H. White at 06:52 PM in Economics

Comments

Larry--the headlines seem unsure whether wages (hourly pay rates), annual earnings, or both have decreased. I haven't looked at the study (I'm on the road this weekend) but I suspect the study focuses on earnings. If so, it's also important to keep in mind my recent post on labor force participation rates. One reason today's men in their 30s may earn less than previous generations of men in their 30s is that a smaller share of men today are working.

Posted by: Frank at May 28, 2007 08:41 AM

My concern lies with the implication from these articles (I have not read the study) that we can measure relative welfare between generations simply by comparing earnings. All the money in the world couldn't get my father on the internet when he was my age. He didn't have a cellphone, pocket calculator, etc. while in college. There are a host of other pleasures in contemporary life that my father's generation could only dream about.

Posted by: David Rossie at May 28, 2007 05:16 PM

I bet that the average 30 year-old man is living in a larger house or apartment than his father was.

Posted by: Mr. Econotarian at May 28, 2007 11:21 PM

Frank Stephenson,
Wouldn't labor force participation swing the opposite way here? The article is about "the median male wage-earner," and I would expect higher average productivity and wage-earning with a smaller labor force. This is especially the case when a driving factor in American income inequality is that high-income workers are working more hours while low-income workers are enjoying more leisure. That interacts with the question of hourly versus annual earnings.

David Rossie speaks to the other conclusion you could easily draw: inflation is overstated because it does not adequately deal with new products and improvements in quality. When my father was 30, his internet speed was... how slow is "won't start for 24 years"? His first home PC was still 18 years away, too.

Posted by: Zubon at May 29, 2007 08:40 AM

Why is a comparison of take-home pay, excluding benefits, interesting? Lately, I've been hearing commentators note that wages have not been keeping up with labor productivity and that CEO compensation is skyrocketing, often due to packages tied to stock market performance. The implication is that owners and management, not workers, are benefiting from the gains in labor productivity. I suspect that if one were to track where the productivity gains are showing up, almost all is going to workers in the form of more comprehensive health care benefits.

The value each dollar spent on health care may be something less than a dollar, but it would not be zero. It would be interesting to ask how much workers value these health benefits. That is, to what extent do health care mandates and inefficiencies in health care provision/financing cause a gap between the marginal value and the marginal costs of additional coverage?

Posted by: MW at May 29, 2007 01:35 PM