NCPA - National Center for Policy Analysis

How Fares The American Worker?

February 6, 1996

American living standards aren't declining. It's simply that data used to support that claim are incomplete and misleading, according to a new study from the National Center for Policy Analysis. Total employee compensation has risen -- not fallen -- over the past two decades, according to Dallas Federal Reserve economists Michael Cox and Beverly Fox, the authors of the study. Consider these factors which are usually overlooked:

  • The share of employee compensation going for benefits has doubled over the past 40 years -- at the expense of wages.
  • Government mandates and tax breaks have made vacations, family leave, and health and retirement plans a good buy for firms since they are paid for with pretax dollars.
  • Since the average worker is two years younger than he was two decades ago and thus has had less time on the job, compensation might be expected to be lower.

While some analysts have claimed that household income has edged down 0.1 percent per year, it should be noted that:

  • Households are some 15 percent smaller than they were 20 years ago -- so fewer people share the same income.
  • Median after-tax income rose 13 percent during the Reagan years; it was only tax hikes during the Bush and Clinton presidencies that have squeezed the middle class.
  • Nevertheless real income per person has actually risen 1.4 percent a year during the last two decades.
  • Also, consider that the average workweek is 2.4 hours shorter than it used to be -- with workers enjoying seven more vacation days each year.

As for the supposed growing gap between capital and labor, both wages and returns to capital have dropped as a share of personal income during the past 20 years due to the growth of transfer payments. Meanwhile, Social Secuity and welfare grew to nearly 17 percent of personal income in 1994, versus 11.6 percent in 1973. Finally, statistics show that the family that wants to get ahead should emphasize education.

  • High school dropouts earn less than half what graduates make.
  • College graduates make about 80 percent more than high school graduates.
  • Those with graduate degrees make about two-and-one-half times more than high school graduates.

The data suggest that tax cuts and school reform should be major elements on the American agenda -- the cuts to promote growth, educational reform to boost income.

Source: Perspective, "Are the Good Times Gone?" Investor's Business Daily, February 6, 1996


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