The Bright Side of Deflation

David Lazarus has a nice column about wage stagnation in the Los Angeles Times, using the peg of falling prices to point out that wages have failed to keep pace with prices over the last thirty years.

According to the U.S. Labor Department, real wages averaged $19.05 an hour in 1978. This year, the average real wage — again, adjusted for inflation — is $18.23 an hour. That means workers today are making less than their fathers.

Over the same period, productivity has risen nearly 150%, while consumer prices have more than tripled.

Where has the wealth created by that productivity gone? To investors and executives. Ever wonder why the stock market is up so much over the last three decades?

From World War II until the mid-1970s, real wages largely reflected advances in productivity. As the value of what workers produced went up, so did paychecks.

That changed as the clout of labor unions waned and as businesses increasingly sought to boost profits by introducing new technology and transferring jobs to wherever people would do them for less money. Companies and their shareholders got wealthier, while the pay of average workers went nowhere.

I have one quibble with this paragraph:

It is. That’s because real wages — the value of people’s paychecks adjusted for inflation — have stagnated or eroded for most of the last 30 years, except for an interval of modest gains from 1997 to 2003.

Meanwhile, productivity and consumer prices have soared.

It’s not fair to juxtapose real wages with nominal consumer prices, which Lazarus later reports have tripled since 1978. The effect of the rise in consumer prices is already reflected in real wage, which are adjusted for inflation.

Other than that, the column is a solid effort.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.