Proposed spendable earnings series retains basic faults of earlier one Essay

On the surface, the new spendable earnings series proposed byProfessor Weisskopf appears to be a considerable improvement over theseries published by the Bureau of Labor Statistics until 1981. Uponclose scrutiny, however, the proposed series is found to share some ofthe basic deficiencies that led to the discontinuation of the old one. Because the proposed series uses gross hourly earnings as itsprincipal ingredient, it is certainly free of much of the downwardpressure on earnings levels that the secular decline in the length ofthe workweek had applied to gross weekly earnings averages, the backboneof the old spendable earnings series. The fact that Professor Weisskopfattemtps earnings series. The fact that Professor Weisskopf attempts toaccount for average deductions for State and local income taxes–inaddition to those for Federal income taxes and social securitycontributions–marks another departure from the old series.

Because of these changes–and, I suspect, primarily because of thefirst one–Professor Weisskopf’s series does show a somewhatsteeper upward trend in spendable earnings over the 1950’s and1960’s than did the discontinued BLS series. To this extent, thenew series would appear to yield a more accurate picture of the actualtrend in earnings for the average full-time worker than was given by theold series, which was being held down by the expansion of the part-timework force. Of more interest, however, is what the two series tell us about thechanges in spendable earnings after both turned downward from their 1972peaks. Specifically, while the old BLS series showed a decline, of 16.6percent in real spendable earnings during the 1972-81 period, ProfessorWeisskopf’s new series shows a somewhat comparable decline of 13.

5percent over the same period. (See chart 1, p. 41.) The fairlyparallel movement of the two series over this period can lead to onlyone conclusion. If the old series was biased downward in portraying thetrend in spendable earnings for the average worker during the1970’s–and there was ample evidence indicating a large bias–thenthe new one, although constructed differently, must also be seriouslybiased downward for the period in question. It must be remembered that the 1970’s were a period duringwhich the age-sex composition of the work force was changingsignificantly, with the proportions accounted for by women and youthgrowing very rapidly.

The fact that many of these newcomers to the jobmarket took only part-time jobs had an obvious dampening effect on theweekly earnings average for all workers. But the hourly earningsaverage was also affected–in similar direction, if not in similarmagnitude–by the changing mix of workers and by the growing proportionreceiving lower, entry-level wages. The extent to which the changing mix of workers affected theoverall earnings average is difficult to quantify. However, some notionof its impact can be obtained merely by comparing the earnings trendsfor all workers with the separate trends for men and women.

Thetabulation below shows the percent changes–in constant dollarterms–over the 1972-81 period both for the payroll-derived series ongross weekly and hourly earnings (which do not provide any informationby sex) and for the household survey-derived series on weekly earnings,which are available with some age-sex detail: Percent change, 1972-81 Payroll series: Mean gross weekly earning-14.3 Mean gross hourly earnings -9.9 Household series: Median usualweekly earnings of full-time workers: Total -8.6 Men, age 2k and over-2.

8 Women, age 25 and over -1.4 Men, age 16 to 24 -11.6 Women, age 16to 24 -12.6 While all of these earnings trends point downward for the period inquestion, the gross weekly earnings series, which was the cornerstone ofthe BLS spendable earnings series, shows a drop that far exceeded thedecline in weekly earnings among most full-time workers as measured inthe household survey. And the decline in gross hourly earnings,although somewhat smaller, also appears to overestimate by aconsiderable amount the true decrease in real earnings among mostworkers. While the household series on median weekly earnings for allfull-time workers did show a decline almost as large as that found inthe payroll series on gross hourly earnings, such was not the case forthe medians for workers age 25 and over. For these workers–who stillmake up the bulk of the U.

S. work force, and who are still visualized asthe “typical” or “average” workers–real medianweekly earnings showed only minimal declines over the 1972-81 period.Only for persons 16 to 24 years of age, who are but a small portion ofthe full-time work force, was the drop in weekly earnings of the samemagnitude as the changes shown by the two payroll series. The above comparisons raise serious questions as to whether anearnings average for all worker groups combined is a good indicator ofthe long-term trend in the earnings of most workers, particularly overperiods when the composition of the labor force is changing rapidly.The problem is that the changes in the earnings averages for a givengroup of workers are not always representative of the changes in theearnings of the “average worker” in the group.

to illustrate, take the following example of a group of workers,consisting initially of five persons and expanding subsequently to six,with their individual earnings behaving as follows: In this case, he earnings average for this group of workers has notchanged at all between the two periods. But could we say the same withregard to the earnings of the average worker in this group? Would wenot have to conclude that the average worker enjoyed a 10-percentincrease in earnings regardless of what is shown by the average for thegroup? (Incidentally, an analogous situation could well develop inthose industries where, on the basis of recently concluded contracts,newly hired workers are brought on at wages much lower than thosereceived by workers already on board. In other words, the institutionof a two-tier wage system may bring down the earnings average for theindustry without a decline in the earnings of any of the individualworkers.) SUMMING UP, in examining earnings trends it is important to gobeyond the overall averages and to disaggregate the data as far aspossible. While we cannot actually track the earnings of individualworkers (except in isolated experiments), disaggregation of the data bysex, age, or other characteristics becomes vital when we are dealingwith long-term trends spanning decades. (Where such disaggregations arenot possible, we should be careful not to automatically equate thechanges in earnings averages with the changes in the earnings of theaverage worker.) The use of aggregate numbers is the basic problem with ProfessorWeisskopf’s analysis, but it is not the only issue complicating theanalysis of earnings trends and the computation of a “spendableearnings” series.

The fact that more and more of a worker’sremuneration–or an employer’s labor cost–is in the form of fringebenefits which are not captured in most earnings data renders themeaning of any “spendable earnings” series ever more difficultto conceptualize and explain. And the anchoring of such series to theearnings information from the establishment survey–which is the casefor the proposed series as it was for the old one–handicaps them withyet other limitations. For example, the computation of the tax burdenis seriously hindered by the lack of any information on familycomposition and total family income.

And coverage would be limited toproduction and nonsupervisory workers in the private sector–a stilllarge but gradually declining proportion of the work force. A better alternative to such series is now available in the form ofthe studies of “after-tax money income” initiated recently bythe Bureau of the Census. These studies, based on microdata from theCurrent Population Survey, provide very detailed estimates of theyear-to-year changes in the purchasing power of U.S. workers and of thedifferences in purchasing power among the principal population groups.While these studies do not yet provide us the historical perspective onspendable earnings that Professor Weisskopf’s series attempts togive us, they are built on much more solid foundations.

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