NCPA - National Center for Policy Analysis


April 4, 2008

The next time you hear a U.S. politician or pundit lament that "average real hourly wages" have declined, don't be misled.  The average real wage is a fundamentally flawed measure of the well-being and progress of American workers for three reasons, says Daniel Griswold, a trade expert with the Cato Institute.

For example:

  • The real wage does not include benefits.
  • It relies on cost-of-living estimates that have tended to systematically overstate inflation in recent decades and thus understate gains in real earnings.
  • Real wage numbers are often compared to previous peak years, a practice that tends to minimize longer-term upward trends.

Although the average real hourly wage paid to American workers is lower today than in the 1970s, says Griswold, average real hourly compensation, which includes benefits such as health care and 401(k) contributions, has gone up:

  • Since 1973, average real hourly compensation for American workers has increased 45 percent, according to the Bureau of Labor Statistics.
  • The growth in real hourly compensation has accelerated in the past decade, rising at an annual rate of 2 percent.
  • Even the average real wage -- despite the overstatement of inflation and omission of benefits -- was 8.2 percent higher in mid-2007 than 10 years ago.

Source: "The Real Story on Worker Compensation," The American, March/April, 2008; based upon: Daniel Griswold, "Trading Up: How Expanding Trade Has Delivered Better Jobs and Higher Living Standards for American Workers," Cato Institute, October 2007.

For Cato study:


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