On Stagnation

Perhaps the most discussed economic issue in recent times has been the stagnation of median compensation. Health care costs have eaten a lot of the gains to workers, but even accounting for them doesn’t eliminate the discrepancy. There are statistical tricks both sides can use, and you can argue all day over each of them, but basically, you’ve got one group saying that things haven’t improved much for the average person since the 70’s, and another group saying they have. I’m not going to try to address income or earnings directly. Rather, I’m going to look at other measures of welfare and show that they’ve improved a fair bit. Maybe not enough, and maybe not for all groups, but at least try to peg down the magnitude of various changes to living standards.

Newly Constructed Housing Sq Ft per Person

Source: Census Bureau

I took the median new single family house size and divided it by the number of people in the median household to get a per capita housing size. I realize this is a rough estimate, since (a) people live in old houses too and (b) the median family size might not reflect the type of family living in the median new house, but I think this graph gets the relative direction and scale right. Old houses get demolished and new houses get built. Over time, there is a clear trend: new houses are bigger and households, especially poorer households, have gotten smaller. That means for the average person, living space has increased a lot over the last 40 years.

Health Care

Life expectancy is higher by about 5 years from the early 70s, despite massively higher obesity rates.
Infant mortality is a lot lower:

We’ve got new drugs, new technology, better replacement limbs, and better trauma medicine. Hospital stays are shorter, and many procedures can be done with minimally invasive procedures rather than traditional surgery. Although costs have increased, it would be hard to call medical technology “stagnant” with a straight face.

Leisure
We can think of our day as being split basically in thirds between sleep, work, and leisure. Even if the work part hasn’t improved that much, we can still be living better lives if the leisure part has improved. Food has improved a lot as well, with the rise of organic, more ethnic restaurants, and generally fresher and tastier food. The internet has improved access to information, culture, and entertainment dramatically.

Less Leisure time is used up doing chores:

Source: Department of Labor report, “New Realities of Working Families”

People have access to a lot more appliances and conveniences:

Bigger appliance graph here

The average person in 1970 didn’t have a microwave, a color TV, a dishwasher, or air conditioning. Today, most people have all four, and a computer with internet.

Education
More young people than ever are going to college. It’s really hard to say whether they are learning more. But college has pretty clear consumption value, so I think on the whole, having more people go to college is a good thing.

Source

Conclusion
Measuring the economy is about trying to measure real output and quality of life. If you say something like “people may not have higher real incomes, but their living standards have improved dramatically in every measurable way”, something is seriously wrong with the measurement itself. The average person lives in a bigger house, has better entertainment, lives longer, eats better food, drives a safer and generally better car, has more and better gadgets and appliances, has access to unlimited information, and spends less time doing housework. Yet, somehow their real incomes haven’t grown. Something strange is going on.

Further Reading
Stories of Progress and Stagnation
Thomas Sowell on median income (podcast)
Stiglitz on Inequality (podcast)
Landsburg on the numbers
The Race Against the Machine – mini-book
Thoma on median wages
Economix on falling incomes
EPI on the wedge between productivity and compensation
Adam Gurri on Stagnation