July 11, 2008

July 11, 2008 | Commentary on Economy

American workers: Still getting ahead ... for now

Where will you be in five years? Many claim the American dream has died. Earnings have supposedly stagnated, even while corporate profits boom and health coverage disappears. Most Americans believe the economy is in a recession. Pick up any newspaper, and it seems the days when most Americans could work hard and expect to get ahead are over.

But look more closely at the polls. They show that most Americans think it's harder for other Americans to get ahead, but that they personally will be better off in the future.

How can most Americans believe that opportunities are vanishing for others but not for themselves? Partly because the economy faces many real challenges. The rising price of gas is one, obviously. And food is more expensive - partly because of laws that call for turning one-eighth of the global corn crop into ethanol.

Reports that most Americans are not getting ahead mesh with the financial pain Americans feel on a daily basis. But despite these problems, few believe they have no chance of getting ahead. And they're right. The claim that working Americans are falling behind has little factual basis.

Take workers' earnings. We often hear they've stagnated over the last eight years, but that's not true. Yes, the growth of cash wages has slowed since the tech bubble burst. However, a third of workers' earnings comes in the form of benefits, such as paid time off, retirement plans and health insurance. The average American's total hourly earnings have risen 17 percent over the past eight years. The typical employee today earns 20 percent more paid time off, 33 percent more in retirement benefits and 50 percent more in health benefits per hour worked than in 2000.

Now, more benefits don't make workers feel wealthy the way higher wages can. Retirement benefits aren't spent for decades. And unless you're seriously ill, you get nothing (for now) from new - and expensive - medical advances. But these non-cash earnings provide workers real benefits, and they cost employers real money.

Living standards have improved in other ways. Nearly everyone has a cell phone. Since the iPod was introduced in 2001, it has almost become a necessity for tens of millions of Americans. Virtually everyone who wants a PC has purchased one (or more) in the last decade.

Many politicians say that productivity is growing faster than workers' earnings. They argue that workers are becoming more productive but that CEOs and investors reap the gains and leave workers behind.

The people who make these claims aren't economists. The much-hyped gap between productivity and earnings exists because the government measures productivity and earnings differently. Politicians look only at cash wages and don't adjust for the different inflation measures used to calculate productivity and earnings. When economists look at workers' total compensation - not just cash wages - and use the same measure of inflation, the gap between productivity and workers pay disappears.

It's like fretting about a speed gap because cars in Canada go 100 on the highway, without noting that Canadian speed limits are in kilometers-per-hour. Using the same measure of speed - or inflation and earnings - makes the gap disappear.

Workers earn, in both cash and benefits, 70 percent of America's total national income, a percentage that's essentially unchanged over the past 40 years. Corporations aren't denying workers the fruits of their labor.

Perhaps that's why most Americans believe they will personally get ahead.

Still, politicians are eager to exploit a crisis of their own making.

Barack Obama wants to raise the top marginal tax rate on individuals above 50 percent, a step that seems intended to ensure no American gets too far ahead. Every Democrat in the Senate has signed on to legislation intended to promote union membership by stripping workers of their right to vote in a secret ballot before joining a union. Union organizers soon may be able to make workers an offer they can't refuse. Cap-and-trade CO2 proposals are billed as creating "green-collar jobs" but will make $4 gas seem cheap and destroy jobs throughout the economy.

America remains a land of opportunity, where most people have a chance to get ahead. And it will stay that way - unless politicians decide otherwise.

James Sherk is the Bradley Fellow in Labor Policy at The Heritage Foundation. Readers may write to the author in care of The Heritage Foundation, 214 Massachusetts Avenue NE, Washington, D.C. 20002.

About the Author

James Sherk Research Fellow, Labor Economics
Center for Data Analysis

Related Issues: Economy

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