Comments on: From the Left: OK, Real Wages Are Growing

By: Daublin

Daublin — Mon, 26 Feb 2007 22:00:11 +0000

You're right. I had paid attention to both of these issues but not put them together until you mentioned it. I have not seen anyone seriously arguing other than in the quote you made: price-indexing causes social security to pay out less. I have heard a number of people trying to argue, though, that median wages have sat still, and presumably that they will continue to sit still Unless Somebody Does Something.

By: Brandon Berg

Brandon Berg — Sat, 24 Feb 2007 19:04:06 +0000

Dan:
Not really. Your benefits aren't indexed to average wages. They're indexed to *your* wages. Some formula based on your average wages over the last 35 years before you retire* determines your initial benefit level. Once you retire, your benefit level is indexed to cost-of-living. So productivity gains after you retire don't get you anything (except lower prices on manufactured goods).

*It's a heavily front-loaded formula, designed such that contributions to Social Security have sharply diminishing marginal returns in terms of benefits.

By: Michael Sullivan

Michael Sullivan — Sat, 24 Feb 2007 19:00:44 +0000

You’re also missing something critical. Benefits will be reduced/increased based on the *mean* wage (for those under the cap), while the complaints have been about the *median* wage. Nobody on the left denies that the top half of the middle class and the rich are doing quite well in the last few years (once the bust bottomed out), it’s everybody else. To some (only some) extent, they are right. Median wages were relatively stagnant from 2001-2005. They didn’t go down, of course, but they didn’t really go up either. And they did go up in 2006 despite slower GDP growth, so it’s not like the working class is on the path to ruin that is often painted. But it is foolish to deny that the top 20% has seen almost all of the wage growth in the last six years.

By: Dan

Dan — Sat, 24 Feb 2007 17:07:35 +0000

It's a matter of standard of living. Rising wages in general are caused by two factors. The first is inflation, the second is rising worker productivity. It is the productivity portion of the increase that allows for an increasing standard of living.

By indexing benefits to wages, the system allows people who are by definition not productive to receive the benefits of productivity gains in other parts of the economy.

Whether that is good or bad is a question of policy, not economics, but it seems to me that it's undesireable when the average retiree is less likely to have a poverty-level income than the average worker.

By: Mesa EconoGuy

Mesa EconoGuy — Sat, 24 Feb 2007 00:26:53 +0000

The Center on Budget and Policy Priorities is a liberal think tank, advocating on behalf of labor unions, so-called low- and moderate income families, and other liberal victim groups.

They are staffed by ex-bureaucrats, many displaced by elections (1994, 2000), who actively develop viewpoints designed to re-employ them.

Their economic â€œanalysesâ€ are not to be taken seriously.

By: Brandon Berg

Brandon Berg — Fri, 23 Feb 2007 23:47:45 +0000

Good catch. I had the same thought when I read Drum’s post. There is one way to resolve this dissonance, though: Argue that CPI understates inflation, and that wage growth is greater than CPI growth, but less than or equal to the “true” rate of inflation.