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Real Wages and Inflation


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So Calax and kgambit stop clogging up the "What you did today" thread with charts.

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So, what's the verdict of the Big Mac index for 1984 and 2014. More or less Big Macs in 2014?

 

(I actually used a home made "beer index" when I started traveling around the world to compare income and expenses, just to discover that some clever guy got the same idea with Big Macs a long time ago).

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For the record, reverse inflation is them going back and saying that what cost 100 bucks in 1982-1984, cost X in 1919

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And I know I'm kind of where I was. But a bit fatter.

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"It wasn't lies. It was just... bull****"."

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And I know I'm kind of where I was. But a bit fatter.

 

Here's a partial answer to your question from the other thread.  

 

Incomes seem to show the same sort of slow real income growth that we see in the US.  Real growth from 2001 to 2013 is about 18% which is slightly lower than the US but the income regression post 2008 doesn't seem to be present or at least not as pronounced,  Growth is low and steady but flattening slightly.

 

uk-hhdi-2001-2012.png?w=595

 

slightly longer time frame (not clear if those are inflation adjusted or not).  I have no clue what inflation metrics are used in the UK. 

 

fig6_tcm77-284693.png

 

and here's the GFP:

 

lvltrend.jpeg

 

 

Both the UK and Sweden showed the same "bubble" in GDP as the US did, but for some reason it doesn't show in personal income.

 

UK_vs_US_post-crisis_GDP.png

 

https://timetric.com/index/household-income-post-tax-nominal-ons/

 

That's all folks.   

Edited by kgambit
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That disposable income flattening.

 

Might it be down to politicians taxing every 'spare' penny and then accusing us of needing it taxed because we're consuming too much fat/sugar/gasoline/space?

"It wasn't lies. It was just... bull****"."

             -Elwood Blues

 

tarna's dead; processing... complete. Disappointed by Universe. RIP Hades/Sand/etc. Here's hoping your next alt has a harp.

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That disposable income flattening.

 

Might it be down to politicians taxing every 'spare' penny and then accusing us of needing it taxed because we're consuming too much fat/sugar/gasoline/space?

 

It's tougher to break this one down because in the US you have sales taxes, property taxes, estate taxes, and local, state and federal income taxes plus social security and medicare taxes.  (And a ton of small excise taxes on things like alcohol, gasoline, and cigarettes that vary widely from state to state.) 

 

I know that inflation adjusted US federal tax rates are down across all income groups.  They have declined since the 1940s, and depending on income bracket have either declined or remained flat since 1980.  The others are tougher to track down. 

 

http://2.bp.blogspot.com/-NbAzw1SjuCk/TpO1gyZIJ9I/AAAAAAAAACU/q9Qhy04L1H8/s1600/Federal+Tax+Rates.jpg

 

https://www.savantcapital.com/uploadedImages/Savant_CMS_Website/Blogs/Sample_Blog/US-Income-Tax-Marginal-Rates.png

 

This article would argue that it's not taxation but general weakness of the economy but I can't find confirmation of his numbers.

 

http://wallstreetpit.com/22914-average-u-s-tax-burden-at-40-year-low/

 

This article only looks at 1997 thru 2009 but it argues against increasing taxes as the cause, since total tax burden across income groups that were studied declined during that period.

 

http://www.cwrichardson.com/a-view-into-us-taxes/

 

(There is only one outlier data point in that entire group of data:  the tax burden for an income of 75,000$ during 2005 and I have no clue what caused that one.)

 

So I don't know Wals but I'm thinking it is not about the taxes (at least not in the US). 

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I think it's more corporate greed mixed with  overengineering of products. So the costs of goods keeps rising relative to the purchasing power of the conumer, but at the same time, the companies who want to sell those goods don't want to raise wages in favor of increased profitability.

 

Hell, at my job the new boss had to make a friggin presentation about the cost of living to get us a raise, as some of the employees who'd been there for 2-3 years hadn't had more than one 10 cent raise since they started working (Owners rationale? We get many tips!). And currently at Lockheed Martin, they're creating a situation where younger people don't want to work there because there is no room for growth for about 10-20 years. My brother currently is looking for another job because rather than promote him, the company is trying to shuffle him sideways in the company, partly because they have so many 50 and 60 year olds who are filling the upper echelons of their workforce.

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So I don't know Wals but I'm thinking it is not about the taxes (at least not in the US). 

 

 

This is just my perception, but in the UK/Eurozone we seem to be taxed on almost everything. Hell, l in the UK we get taxed 20% on sales! Never mind all the various 'levies' to 'promote' 'green' job creation schemes.

 

This discussion is making me sincerely concerned about the next 30 years. If you presume economic stagnation, and rising costs then the only thing I can see making sense is... nope, can't think of anything. Not for ordinary people, anyway.

"It wasn't lies. It was just... bull****"."

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So the costs of goods keeps rising relative to the purchasing power of the conumer,

 

No.

 

From 1984 onward that is decidedly not true.   The CPI has risen which does mean that the purchasing power of an individual dollar has indeed fallen.  But incomes have risen faster than the dollar has declined during that time period.  Since  total consumer buying power (or total purchasing power) is simply the number of dollars times their individual purchasing power, total consumer purchasing power has increased. 

 

Let me repeat that: Overall real buying power has increased from 1984 to present day.  If you want to change the time frame, fine but you originally stated 1984 as your start date and on that basis you are wrong.

 

 

Just look at the numbers.

 

Here's a chart of the median income for the US from 1967 by year to 2012, both nominal (unadjusted for inflation) and real (inflation adjusted).

 

http://www.davemanuel.com/median-household-income.php

 

ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

 

http://www.dollartimes.com/calculators/inflation.htm

 

Since your original claim was based on 1984 as a starting point, let's pick it up from there.

 

From the Dave Manuel link:

In 1984, nominal income was 20,948$.  In 2012, it was $50,099 

Let's adjust for Inflation which means adjusting for the relative difference in the prices of items.  Using the CPI-U we get this:

In 1984, real income was 47,181$.  In 2012, it was $51,017 

(Note the CPI numbers in 1984 and 2012 are 101.9 and 226.665 if you want to renormalize yourself)

Admittedly that's only 8% real income growth but it is real growth and it is inflation adjusted (relative to the CPI-U) which means it's real growth relative to prices!

 

You can check the inflation adjustment for yourself.  Historical inflation runs at~3% per annum over that period.   (Edit: Annual inflation over this period was actually 2.86%) 

That's 2.356 x when you account for cumulative growth. (2.26 if you use the actual 2.86%)  And that's actually less the growth in salaries over that same period from the table, and the CPI change over that period is almost exactly what we would expect with the 2.86% 

 

The CPI-U numbers for those same dates are as follows:   In 1984, CPI-U was 101.9; in 2012 it was 226.665

Those numbers are from the BLS link that you provided before.

So 20,948$ in 1984 was the equivalent of 46,596$ in 2012 (if adjusted for price index).  Since the 2012 Nominal income is higher than that, incomes outgrew the CPI-U and therefore outgrew prices

 

Again REAL buying power is up.

 

If you want to change the time frame, fine but let's at least be clear what period you are talking about. 

 

If you want to argue that incomes have decreased even after adjustment for inflation since 2008 I won't give you any argument. 

If you want to argue that inflation adjusted median incomes sagged starting in 2000 and recovered to 2000 levels in 2008, I won't disagree with that either.  There have been three income sags since 1980 and we might be in a fourth. 

If you want to argue that the disparities between income growth of the upper and lower income quintiles have resulted in a widening wealth edge, that's fine too.   

 

But don't argue that inflation adjusted income hasn't increased since 1984 because the numbers do not support it.

 

http://www.census.gov/prod/2013pubs/p60-245.pdf

 

 

 

 

@Wals - like I said the UK is a bit out of my knowledge base.   Does this look right for the UK?

 

IFS4.jpg

 

I think the overall % are a bit higher than the US at the lower income levels but the upper levels don't look to be that much large 

I'm also not sure about the indirect taxes since I don't have direct first hand knowledge.

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Well part of the reason that you're taxed so much is that you have a much larger social services industry. In america the tax burden is lower, but the wages are also lower in general. And there are entire industries built upon you not being able to pay for things (payday advance etc). 

 

Add to that the fact that in order to make money, everyone is told that you need an education (which in many european countries is partly nationalized, here it's mostly private/student funded) so kids are outright bankrupting themselves trying to get ahead. And when you start with no money it's really hard to have any money come in because you're always paying off last weeks debt.

 

It was kinda funny, had a friend who was complaining that "I pay 150 a month on my loans for 2 years, and i've only payed off about 100 dollars!?" which led to me explaining that Compound interest is magically removing most of her paying power. IMO (again, OPINION!) one of the reasons the amount of disposible income has dropped is because we're paying almost 150% extra on anything we purchase with a price tag over about 7 grand due to compound interest.

 

And the average income, adjusted for inflation, over the past 10ish years it's risen 11% (according to the NYtimes article I've linked previously). For the 90th percentile, it's risen 20%... and when you hit 99 it becomes 100%+ numbers (increasing exponentially the smaller you make the percentile).

Victor of the 5 year fan fic competition!

 

Kevin Butler will awesome your face off.

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Add to that the fact that in order to make money, everyone is told that you need an education (which in many european countries is partly nationalized, here it's mostly private/student funded) so kids are outright bankrupting themselves trying to get ahead. And when you start with no money it's really hard to have any money come in because you're always paying off last weeks debt.

 

Add to that the fact that in order to make money, everyone is told that you need an education (which in many european countries is partly nationalized, here it's mostly private/student funded) so kids are outright bankrupting themselves trying to get ahead. And when you start with no money it's really hard to have any money come in because you're always paying off last weeks debt.

 

It was kinda funny, had a friend who was complaining that "I pay 150 a month on my loans for 2 years, and i've only payed off about 100 dollars!?" which led to me explaining that Compound interest is magically removing most of her paying power. IMO (again, OPINION!) one of the reasons the amount of disposible income has dropped is because we're paying almost 150% extra on anything we purchase with a price tag over about 7 grand due to compound interest.

 

The average value of a 4-year degree is increased earnings income of $900,000, almost a million dollars, compared to a high school education.  I think that's worth the investment.

 

Admittedly educational costs are far outstripping inflation so it makes it tougher.  Last time I checked ed costs were one of the fastest risers.  The flip side is ed loans are low interest.  (Correction:  I double checked and they aren't as low as I remember.  Fed student loans run 3.86 to 6+% now.  My loan rates were considerably lower.  So things are tougher) 

 

Usually you don't have to start repayment until after you graduate and you have a 6 month window to start, assuming that you do not interrupt your schooling.   I think it still works that way.  I know the squeeze though.  I had fed and state loans to pay off and the state loans required repayment immediately on graduation.  Which meant I was paying them off while I was in grad school.  OUCH!  So yeah I understand the pain. 

 

Yeah compound interest is a bitch.  Sometimes the solution is to go without until you can really afford something.  yeah that's harsh.  I'll be blunt - I have absolutely no sympathy for someone complaining about how paying interest on something is stretching their budget.  If you can't really afford it, don't buy it.  After all, you did mention items over 7 grand and I hardly would classify things in that range as essentials.  

 

Okay, income disparity is fair game.  I totally agree with two issues. 

 

(1) Increased worker productivity has not found it's way into regular incomes - that profit has increasingly been retained at the corporate level without proportionate increases in hiring or income. 

 

(2) The % share of wealth held by various income groups has become decidedly skewed towards the 1%.  I have to admit that part of me says so effing what?  Isn't that part of what is so great about the US?  Being able up with a fantastic freaking idea and making a bloody fortune?  Like Facebook?   On the flip side, I do wonder why there is a cap on income for paying social security and medicare taxes.  Oh I understand why it's there - I just don't think it should be.

Edited by kgambit
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UK_vs_US_post-crisis_GDP.png

 

This is interesting: the US seems to have made a much better recovery from the financial crisis. I wonder why that is?

 

 

There is a slight kink around mid-2010 when the UK recovery starts to flatten. Isn't that when David Cameron came to power with an agenda of reigning in the debt?  It might also be a slight increase in unemployment at about the same time.  Check out the second of the next two graphs. 

 

Here's two slightly different plots for the entire G7:

 

ftblog72.gif

 

ftblog246.gif

Edited by kgambit
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Add to that the fact that in order to make money, everyone is told that you need an education (which in many european countries is partly nationalized, here it's mostly private/student funded) so kids are outright bankrupting themselves trying to get ahead. And when you start with no money it's really hard to have any money come in because you're always paying off last weeks debt.

 

Add to that the fact that in order to make money, everyone is told that you need an education (which in many european countries is partly nationalized, here it's mostly private/student funded) so kids are outright bankrupting themselves trying to get ahead. And when you start with no money it's really hard to have any money come in because you're always paying off last weeks debt.

 

It was kinda funny, had a friend who was complaining that "I pay 150 a month on my loans for 2 years, and i've only payed off about 100 dollars!?" which led to me explaining that Compound interest is magically removing most of her paying power. IMO (again, OPINION!) one of the reasons the amount of disposible income has dropped is because we're paying almost 150% extra on anything we purchase with a price tag over about 7 grand due to compound interest.

 

The average value of a 4-year degree is increased earnings income of $900,000, almost a million dollars, compared to a high school education.  I think that's worth the investment.

 

Admittedly educational costs are far outstripping inflation so it makes it tougher.  Last time I checked ed costs were one of the fastest risers.  The flip side is ed loans are low interest.  (Correction:  I double checked and they aren't as low as I remember.  Fed student loans run 3.86 to 6+% now.  My loan rates were considerably lower.  So things are tougher) 

 

Usually you don't have to start repayment until after you graduate and you have a 6 month window to start, assuming that you do not interrupt your schooling.   I think it still works that way.  I know the squeeze though.  I had fed and state loans to pay off and the state loans required repayment immediately on graduation.  Which meant I was paying them off while I was in grad school.  OUCH!  So yeah I understand the pain. 

 

Yeah compound interest is a bitch.  Sometimes the solution is to go without until you can really afford something.  yeah that's harsh.  I'll be blunt - I have absolutely no sympathy for someone complaining about how paying interest on something is stretching their budget.  If you can't really afford it, don't buy it.  After all, you did mention items over 7 grand and I hardly would classify things in that range as essentials.  

 

Okay, income disparity is fair game.  I totally agree with two issues. 

 

(1) Increased worker productivity has not found it's way into regular incomes - that profit has increasingly been retained at the corporate level without proportionate increases in hiring or income. 

 

(2) The % share of wealth held by various income groups has become decidedly skewed towards the 1%.  I have to admit that part of me says so effing what?  Isn't that part of what is so great about the US?  Being able up with a fantastic freaking idea and making a bloody fortune?  Like Facebook?   On the flip side, I do wonder why there is a cap on income for paying social security and medicare taxes.  Oh I understand why it's there - I just don't think it should be.

 

There are just two things that should be added to your analysis:

 

Outsourcing has eliminated a lot of low level entry jobs as well as moved entire fields to other countries and now people are just working harder to be able to keep their jobs rather than make progress. Students take the worst of it since they are trying to enter industries which requires them to have experience which they are unable to gain as the jobs are simply not there.

 

Markets have been consolidating for some time, with just a few emergent global markets remaining and an industry that's monopolized by mega-corporations. I doubt that a small business can break into a market that's dominated by a corporate entity, that would be a remarkable feat of the likes of David defeating Goliath. Mark Zuckerberg is likely to be one of the few people who can take an idea and create a market out of it because he created something new.  I would say that in order to break into an established market you'd have to be either extremely wealthy, extremely smart or extremely lucky. 

With the level of education that we see in the US I guess that just leaves the wealthy.

 

I'd say the answer to that question is kind of like the answer to "who's the sucker in this poker game?"*

 

*If you can't tell, it's you. ;)

village_idiot.gif

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Add to that the fact that in order to make money, everyone is told that you need an education (which in many european countries is partly nationalized, here it's mostly private/student funded) so kids are outright bankrupting themselves trying to get ahead. And when you start with no money it's really hard to have any money come in because you're always paying off last weeks debt.

 

The average value of a 4-year degree is increased earnings income of $900,000, almost a million dollars, compared to a high school education.  I think that's worth the investment.

 

If so many people have degrees, then why aren't they earning hundreds of thousands of dollars?

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That's over lifetime, not annual.

True, but at the same time, it's not guaranteed, and those numbers are based off the previous two generations where college was not as widespread as it is in todays world (where everything you do in highschool is geared towards sending you to college, rather than getting you ready for life). Anecdotal I know but right now one of my friends has a comp sci degree and is a checker for Target and that's it because of the choice he made that prioritized college over work.

 

 

 

 

Add to that the fact that in order to make money, everyone is told that you need an education (which in many european countries is partly nationalized, here it's mostly private/student funded) so kids are outright bankrupting themselves trying to get ahead. And when you start with no money it's really hard to have any money come in because you're always paying off last weeks debt.

 

Add to that the fact that in order to make money, everyone is told that you need an education (which in many european countries is partly nationalized, here it's mostly private/student funded) so kids are outright bankrupting themselves trying to get ahead. And when you start with no money it's really hard to have any money come in because you're always paying off last weeks debt.

 

It was kinda funny, had a friend who was complaining that "I pay 150 a month on my loans for 2 years, and i've only payed off about 100 dollars!?" which led to me explaining that Compound interest is magically removing most of her paying power. IMO (again, OPINION!) one of the reasons the amount of disposible income has dropped is because we're paying almost 150% extra on anything we purchase with a price tag over about 7 grand due to compound interest.

 

The average value of a 4-year degree is increased earnings income of $900,000, almost a million dollars, compared to a high school education.  I think that's worth the investment.

 

Admittedly educational costs are far outstripping inflation so it makes it tougher.  Last time I checked ed costs were one of the fastest risers.  The flip side is ed loans are low interest.  (Correction:  I double checked and they aren't as low as I remember.  Fed student loans run 3.86 to 6+% now.  My loan rates were considerably lower.  So things are tougher) 

 

Usually you don't have to start repayment until after you graduate and you have a 6 month window to start, assuming that you do not interrupt your schooling.   I think it still works that way.  I know the squeeze though.  I had fed and state loans to pay off and the state loans required repayment immediately on graduation.  Which meant I was paying them off while I was in grad school.  OUCH!  So yeah I understand the pain. 

 

Yeah compound interest is a bitch.  Sometimes the solution is to go without until you can really afford something.  yeah that's harsh.  I'll be blunt - I have absolutely no sympathy for someone complaining about how paying interest on something is stretching their budget.  If you can't really afford it, don't buy it.  After all, you did mention items over 7 grand and I hardly would classify things in that range as essentials.  

 

Okay, income disparity is fair game.  I totally agree with two issues. 

 

(1) Increased worker productivity has not found it's way into regular incomes - that profit has increasingly been retained at the corporate level without proportionate increases in hiring or income. 

 

(2) The % share of wealth held by various income groups has become decidedly skewed towards the 1%.  I have to admit that part of me says so effing what?  Isn't that part of what is so great about the US?  Being able up with a fantastic freaking idea and making a bloody fortune?  Like Facebook?   On the flip side, I do wonder why there is a cap on income for paying social security and medicare taxes.  Oh I understand why it's there - I just don't think it should be.

 

There are just two things that should be added to your analysis:

 

Outsourcing has eliminated a lot of low level entry jobs as well as moved entire fields to other countries and now people are just working harder to be able to keep their jobs rather than make progress. Students take the worst of it since they are trying to enter industries which requires them to have experience which they are unable to gain as the jobs are simply not there.

 

Markets have been consolidating for some time, with just a few emergent global markets remaining and an industry that's monopolized by mega-corporations. I doubt that a small business can break into a market that's dominated by a corporate entity, that would be a remarkable feat of the likes of David defeating Goliath. Mark Zuckerberg is likely to be one of the few people who can take an idea and create a market out of it because he created something new.  I would say that in order to break into an established market you'd have to be either extremely wealthy, extremely smart or extremely lucky. 

With the level of education that we see in the US I guess that just leaves the wealthy.

I think that's part of it, also the fact that there is such an income disparity means that for the most part you won't see somebody finding something akin to McDonalds and making it worth a gajillion dollars. Because they don't have the inital money to even try to start up and then if they start to become big they get run over by their competitors corporations.

 

Although to be fair I'm considering starting a business in denver after school to fill a need between Boulder and the Denver international.

Victor of the 5 year fan fic competition!

 

Kevin Butler will awesome your face off.

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Add to that the fact that in order to make money, everyone is told that you need an education (which in many european countries is partly nationalized, here it's mostly private/student funded) so kids are outright bankrupting themselves trying to get ahead. And when you start with no money it's really hard to have any money come in because you're always paying off last weeks debt.

 

The average value of a 4-year degree is increased earnings income of $900,000, almost a million dollars, compared to a high school education.  I think that's worth the investment.

 

If so many people have degrees, then why aren't they earning hundreds of thousands of dollars?

 

 

 

Because you rarely get a starting job that pays that much to start and at today's average starting salary for a college graduate of you would need to work approximately 23+ years with annual 3% raises to reach a 100K$ salary.     

 

The US currently ranks 12th out of the OECD countries in terms of the percentage of adults 25 thru 34 with an associate degree or higher at 41.3%. 

 

http://thinkprogress.org/education/2010/07/26/177470/college-attain-fall/

 

Starting salaries also vary widely by discipline.  The average starting salary is ~45,000$ for a college graduate.  Which happens to be below the median income.

 

http://www.forbes.com/sites/susanadams/2013/04/15/college-degrees-with-the-highest-starting-salaries-3/

 

Starting incomes for college graduates are anywhere from 67% to 100% higher than high school graduates.  Conversely high school graduates make 50 to 60% of what a college graduate does. 

 

http://www.bizjournals.com/bizjournals/on-numbers/scott-thomas/2012/12/grads-earn-85-more-than-those-without.html?page=all

 

Which means that a high school graduate makes an average starting salary of 22,500$ to 27,000$.  They also represent around half of the 25-34 yr old age group.

 

Why is a college education worth so much more?   Do the math. 

~25k$ a year more income for a college graduate x 30 years = 750,000$ without any salary increases or compounded growth.

 

If you really want to cash in, become a petroleum geologist.   The average starting salary is  ~85,000$

 

http://www.aapg.org/explorer/2012/04apr/salary_survey0412.cfm

Edited by kgambit
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