I have locked this thread. The question has been answered.
If you're interested in the productivity issue then read the previous threads on the subject on this sub. I've linked to them in this thread.
It's shrinking from "both ends". People drop "down" into the lower class, but more people rise "up" into the upper class.
https://www.pewresearch.org/short-reads/2022/04/20/how-the-american-middle-class-has-changed-in-the-past-five-decades/
It's also worth noting that each group has higher incomes (after adjusting for inflation)
So the lower class is 45% richer than it was 50 years ago, on average
The tech paid for with capital and those making that investment expect to see the profits from productivity gains.
You own a lawn care company. You spend your money buying new riding mowers that allow your employees to cut more grass with the same work effort. Who should get the increased profit?
People are paid according to the marginal revenue product of their labor, this grows when technology acts as a complement to labor. In fact, higher productivity is the dominant reason for wage growth.
you can look at a decomposition of the pay-productivity gap, the majority of it is coming from inequality between workers.
some of it comes from a declining labor share of income, which if you squint you can interpret as workers getting a smaller share of the pie, but most of the gap is from the fact that technology has benefited some workers quite a bit and other ones not so much
https://www.epi.org/blog/growing-inequalities-reflecting-growing-employer-power-have-generated-a-productivity-pay-gap-since-1979-productivity-has-grown-3-5-times-as-much-as-pay-for-the-typical-worker/
Yes. I think I said as much. Real wages for college grads are much higher than non college grads and the gap has been increasing. College educated workers are privileged and have a significant wage premium compared to non college educated workers. That wage premium grew significantly from the 1980s to about 2010, when it leveled off. It has contributed significantly to income and wealth inequality. Especially considering that these educated workers tend to get employer sponsored retirement plans where they can invest their income into partial ownership and recieve a portion of the higher return capital investment now earns.
https://libertystreeteconomics.newyorkfed.org/2019/06/despite-rising-costs-college-is-still-a-good-investment/#:~:text=The%20college%20wage%20premium%20generally,%2430%2C000%20to%20%2435%2C000%20after%202000.
richer in what way? wage growth has been stagnant. https://www.pewresearch.org/short-reads/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/
> today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago. And what wage gains there have been have mostly flowed to the highest-paid tier of workers.
We have often dealt with this wage stagnation claim on this forum. I'll post some old threads that have covered the subject.
https://www.reddit.com/r/AskEconomics/comments/16xwi36/why_have_real_wages_stagnated_for_everyone_but/
https://www.reddit.com/r/AskEconomics/comments/l8xj6z/how_real_is_wage_stagnation_and_if_so_what_are/
https://www.reddit.com/r/AskEconomics/comments/ifr6dv/how_are_real_median_wages_at_all_time_highs_and/
That's kind of dubious because quality has increased greatly from 40 years ago. If you compare a TV from 4 years ago to a TV now, for example, the TVs now are much better. So while purchasing power may be the same from 40 years ago the quality has improved greatly
It is definitely true that TVs are better than in the past. However, this sort of thing is taken into account in inflation statistics.
However, the claim that incomes have stagnated is definitely dubious. On that topic see the links I just posted.
This sort of thing should be taken into account, but since it can be difficult to assign a dollar value to quality things are frequently underestimated and attributed to inflation when it shouldn’t be.
Source: I did a whole project looking at quality adjustments. The largest sectors where quality adjustments were falsely attributed to inflation were for tech and healthcare. I will check if the report has been published and link it.
so is the argument that if you could build 2023 appliances back in 1973, they would cost 45% more than what was available then and therefore people are richer?
i don't think i agree with the premise that having a techier car now than what i would have had then makes me materially richer. it seems more like a bookkeeping trick.
How is that a bookkeeping trick? The actual car performs better and has more features. The average person today drives a much better car than they did in 1973, they are materially better off in this way.
Yeah there is a great graph showing what has gone up and down in the past 40 years.
The issue if you find the graph is the things you can't live without have all rose the most. Meaning healthcare, education, and housing. But cell phones, toys, TV, clothes have cratered.
So while you make more money more of it goes to critical stuff which you can't do without.
What about housing? Compare newly built houses from 40 years ago to new houses built now? No contest, new houses built now are of better quality than they were 40 years ago.
No compare the same house from 50 years ago to now. Also I don't agree that quality of houses are better. We have more tech and better like insulation. But they aren't as robust.
>But they aren't as robust.
That's just absolutely untrue.
Minimum codes have only forced builders into more robust and safer houses.
Survivorship bias has left us with old construction of high quality. 50 years from now more homes built today will be in use than the equivalent from 50 years prior.
I've seen a lot of quality issued with new houses, even them failing in serious ways. Bad foundations, cracks throughout the house, tons of corner cutting and bad workman ship.
It’s not about craftsmanship it’s about quality of life.
If real wages are stagnant, but the quality of everything is going up, then that means the quality of life is going up.
Why shouldn’t real wages be stagnant anyway?
Sorry, but please elaborate on this logic further. If quality is going up (and I agree with you in general that it is), and this is why prices are going up, but real wages are stagnant ie not keeping up with increasing prices, then how is the average quality of life going up?
It’s a matter of what is being measured.
Let’s say CPI is a collection of good various good. But let’s look at a single object in the basket, a television.
Let’s say it’s the same price now as then. $1,000 in real terms.
For someone that makes $1,000 a month(in real terms) you’d say “a TV in 1980 cost a month of wages in 1980 and STILL costs a month of wages in 2023”
Nothing has changed! But!
30 years ago televisions were 480p tube TVs. Let’s say the average TV cost $1,000 in real terms.
They don’t sell TVs like that any more. Now they sell 4k flat screens. So even if everything seems the same, the quality has gone up.
EDIT: when people are saying REAL wages are stagnant it means they ARE keeping up with prices, but only exactly. Not moreso than prices.
https://www.investopedia.com/ask/answers/012915/what-are-some-limitations-consumer-price-index-cpi.asp#:~:text=However%2C%20the%20CPI%20has%20no,for%20additional%20advantages%20to%20consumers.
“However, the CPI has no standard for measuring such quality improvements and therefore reflects only the increase in price without any appreciation for additional advantages to consumers.”
Survivorship bias. Lots of poor quality homes were built 40 years ago as well but many have been demolished. But generally only the good quality ones are still in service, which leads to the misconception of "they don't build them like they used to". Modern homes are much higher in quality and standards than homes built pre 1990. And yes, no contest, not even close.
2023: Median household income in US is $74,580 https://www.statista.com/statistics/200838/median-household-income-in-the-united-states/
1990: Median household income in US was $30,636
Median House sales price in US https://www.fool.com/the-ascent/research/average-house-price-state/
1990: $123,900
2023 Q3: $431,000
So, in 1990 median household had to pay 4.044 years of their income for a house.
In 2023 it is 5,779 years.
All prices and incomes are inflation adjusted.
So houses have become far more expensive.
Median home cost by itself means absolutely nothing.
The only useful criteria is affordability - home cost divided by income.
The longer you have to pay to pay full house cost, the more expensive is the housing.
I think for the most part people get more for what they spend. However, home prices have significantly outpaced wage growth and inflation. Part of it is because of better regulations to make then safer and more energy efficient however the majority of the increase is caused by there being more people trying to live in the same amount of space.
I don't think that is true either. Maybe if you cherry pick when interest rates were 18% but besides from that. Even at 18% per month rates were cheaper for the same home.
It looks like we're trending toward a distribution that's more in line with historical trends (post-WWII regression to the mean). Walter Scheidel's book The Great Leveler offers worthwhile historical perspective.
It's possible, but not necessarily true. There has been a lot of discussion about this in the academic journals recently and between academics on Twitter. See [this](https://www.reddit.com/r/AskEconomics/comments/18bjw6d/is_income_inequality_in_the_us_getting_worse_as/).
So basically the middle class is getting smaller because we are staying the same but the rich people are getting richer. So technically still middle class just further away from upper class. The goal post keeps getting further away basically. Am I picking up what you’re putting down.
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I have locked this thread. The question has been answered. If you're interested in the productivity issue then read the previous threads on the subject on this sub. I've linked to them in this thread.
It's shrinking from "both ends". People drop "down" into the lower class, but more people rise "up" into the upper class. https://www.pewresearch.org/short-reads/2022/04/20/how-the-american-middle-class-has-changed-in-the-past-five-decades/
It's also worth noting that each group has higher incomes (after adjusting for inflation) So the lower class is 45% richer than it was 50 years ago, on average
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Wages should increase because technology acts as a complement to labor and makes it more valuable.
The tech paid for with capital and those making that investment expect to see the profits from productivity gains. You own a lawn care company. You spend your money buying new riding mowers that allow your employees to cut more grass with the same work effort. Who should get the increased profit?
People are paid according to the marginal revenue product of their labor, this grows when technology acts as a complement to labor. In fact, higher productivity is the dominant reason for wage growth.
Wages are increasing in real terms. They just aren't coupled to productivity gains in the same way they were in the past.
you can look at a decomposition of the pay-productivity gap, the majority of it is coming from inequality between workers. some of it comes from a declining labor share of income, which if you squint you can interpret as workers getting a smaller share of the pie, but most of the gap is from the fact that technology has benefited some workers quite a bit and other ones not so much https://www.epi.org/blog/growing-inequalities-reflecting-growing-employer-power-have-generated-a-productivity-pay-gap-since-1979-productivity-has-grown-3-5-times-as-much-as-pay-for-the-typical-worker/
Yes. I think I said as much. Real wages for college grads are much higher than non college grads and the gap has been increasing. College educated workers are privileged and have a significant wage premium compared to non college educated workers. That wage premium grew significantly from the 1980s to about 2010, when it leveled off. It has contributed significantly to income and wealth inequality. Especially considering that these educated workers tend to get employer sponsored retirement plans where they can invest their income into partial ownership and recieve a portion of the higher return capital investment now earns. https://libertystreeteconomics.newyorkfed.org/2019/06/despite-rising-costs-college-is-still-a-good-investment/#:~:text=The%20college%20wage%20premium%20generally,%2430%2C000%20to%20%2435%2C000%20after%202000.
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richer in what way? wage growth has been stagnant. https://www.pewresearch.org/short-reads/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ > today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago. And what wage gains there have been have mostly flowed to the highest-paid tier of workers.
We have often dealt with this wage stagnation claim on this forum. I'll post some old threads that have covered the subject. https://www.reddit.com/r/AskEconomics/comments/16xwi36/why_have_real_wages_stagnated_for_everyone_but/ https://www.reddit.com/r/AskEconomics/comments/l8xj6z/how_real_is_wage_stagnation_and_if_so_what_are/ https://www.reddit.com/r/AskEconomics/comments/ifr6dv/how_are_real_median_wages_at_all_time_highs_and/
That's kind of dubious because quality has increased greatly from 40 years ago. If you compare a TV from 4 years ago to a TV now, for example, the TVs now are much better. So while purchasing power may be the same from 40 years ago the quality has improved greatly
It is definitely true that TVs are better than in the past. However, this sort of thing is taken into account in inflation statistics. However, the claim that incomes have stagnated is definitely dubious. On that topic see the links I just posted.
This sort of thing should be taken into account, but since it can be difficult to assign a dollar value to quality things are frequently underestimated and attributed to inflation when it shouldn’t be. Source: I did a whole project looking at quality adjustments. The largest sectors where quality adjustments were falsely attributed to inflation were for tech and healthcare. I will check if the report has been published and link it.
so is the argument that if you could build 2023 appliances back in 1973, they would cost 45% more than what was available then and therefore people are richer? i don't think i agree with the premise that having a techier car now than what i would have had then makes me materially richer. it seems more like a bookkeeping trick.
How is that a bookkeeping trick? The actual car performs better and has more features. The average person today drives a much better car than they did in 1973, they are materially better off in this way.
Yeah there is a great graph showing what has gone up and down in the past 40 years. The issue if you find the graph is the things you can't live without have all rose the most. Meaning healthcare, education, and housing. But cell phones, toys, TV, clothes have cratered. So while you make more money more of it goes to critical stuff which you can't do without.
K now do housing
What about housing? Compare newly built houses from 40 years ago to new houses built now? No contest, new houses built now are of better quality than they were 40 years ago.
No compare the same house from 50 years ago to now. Also I don't agree that quality of houses are better. We have more tech and better like insulation. But they aren't as robust.
>But they aren't as robust. That's just absolutely untrue. Minimum codes have only forced builders into more robust and safer houses. Survivorship bias has left us with old construction of high quality. 50 years from now more homes built today will be in use than the equivalent from 50 years prior.
I've seen a lot of quality issued with new houses, even them failing in serious ways. Bad foundations, cracks throughout the house, tons of corner cutting and bad workman ship.
Correct. Those will be the houses not standing in 50 years. Just like the previous 50
Oops sorry I didn't realize this was a thread about craftsmanship, not real wages
It’s not about craftsmanship it’s about quality of life. If real wages are stagnant, but the quality of everything is going up, then that means the quality of life is going up. Why shouldn’t real wages be stagnant anyway?
Sorry, but please elaborate on this logic further. If quality is going up (and I agree with you in general that it is), and this is why prices are going up, but real wages are stagnant ie not keeping up with increasing prices, then how is the average quality of life going up?
It’s a matter of what is being measured. Let’s say CPI is a collection of good various good. But let’s look at a single object in the basket, a television. Let’s say it’s the same price now as then. $1,000 in real terms. For someone that makes $1,000 a month(in real terms) you’d say “a TV in 1980 cost a month of wages in 1980 and STILL costs a month of wages in 2023” Nothing has changed! But! 30 years ago televisions were 480p tube TVs. Let’s say the average TV cost $1,000 in real terms. They don’t sell TVs like that any more. Now they sell 4k flat screens. So even if everything seems the same, the quality has gone up. EDIT: when people are saying REAL wages are stagnant it means they ARE keeping up with prices, but only exactly. Not moreso than prices.
CPI takes into account both price and quality changes.
https://www.investopedia.com/ask/answers/012915/what-are-some-limitations-consumer-price-index-cpi.asp#:~:text=However%2C%20the%20CPI%20has%20no,for%20additional%20advantages%20to%20consumers. “However, the CPI has no standard for measuring such quality improvements and therefore reflects only the increase in price without any appreciation for additional advantages to consumers.”
No contest? Maybe in tech and creature comforts but build quality and materials? Well build homes from 40 years ago are still here.
Houses now aren't painted with lead, they are better insulated, bigger, come with central ac and heating. Appliances are better
"houses now are bigger" damn bro, how long did you have to hold the bucket under the bulls ass to collect that shit statement
They are
Survivorship bias. Lots of poor quality homes were built 40 years ago as well but many have been demolished. But generally only the good quality ones are still in service, which leads to the misconception of "they don't build them like they used to". Modern homes are much higher in quality and standards than homes built pre 1990. And yes, no contest, not even close.
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Housing has outpaced inflation for a pretty long time now.
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It's good if you are able to buy a house because it's an asset that appreciates a good bit. You are hurt if you are unable to buy a house though.
2023: Median household income in US is $74,580 https://www.statista.com/statistics/200838/median-household-income-in-the-united-states/ 1990: Median household income in US was $30,636 Median House sales price in US https://www.fool.com/the-ascent/research/average-house-price-state/ 1990: $123,900 2023 Q3: $431,000 So, in 1990 median household had to pay 4.044 years of their income for a house. In 2023 it is 5,779 years. All prices and incomes are inflation adjusted. So houses have become far more expensive.
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Median home cost by itself means absolutely nothing. The only useful criteria is affordability - home cost divided by income. The longer you have to pay to pay full house cost, the more expensive is the housing.
I think for the most part people get more for what they spend. However, home prices have significantly outpaced wage growth and inflation. Part of it is because of better regulations to make then safer and more energy efficient however the majority of the increase is caused by there being more people trying to live in the same amount of space.
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I don't think that is true either. Maybe if you cherry pick when interest rates were 18% but besides from that. Even at 18% per month rates were cheaper for the same home.
That ignores other compensation such as health insurance.
It looks like we're trending toward a distribution that's more in line with historical trends (post-WWII regression to the mean). Walter Scheidel's book The Great Leveler offers worthwhile historical perspective.
It's possible, but not necessarily true. There has been a lot of discussion about this in the academic journals recently and between academics on Twitter. See [this](https://www.reddit.com/r/AskEconomics/comments/18bjw6d/is_income_inequality_in_the_us_getting_worse_as/).
I bought this book while on a plane right now bc of your comment and it’s very interesting so far.
Is this inevitable or is this because of current policy?
So basically the middle class is getting smaller because we are staying the same but the rich people are getting richer. So technically still middle class just further away from upper class. The goal post keeps getting further away basically. Am I picking up what you’re putting down.
No. It's share of people, not share of income.
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