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WAGES
US WAGES FROM 1965 TO 2020 Kevin Drum ... Did Workers’ Wages Skyrocket During the ’70s? Not When You Figure In Inflation. 
Original article: https://www.motherjones.com/kevin-drum/2019/12/did-workers-wages-skyrocket-during-the-70s-not-when-you-figure-in-inflation/ Peter Burgess COMMENTARY The writer here makes a completely valid point, and answers the question absolutely correctly. But there are also other factors in play in order to explain why there was inflation in the first place. The US and many other major countries had experienced an economic boom since the end of the Second World War, but that had faltered somewhat in the 1960s. This was widely described as a period of 'stagflaton'. Some economic analysts point to President Nixon's decision to end the 'gold standard' regime as the trigger for a lot of subsequent economic malaise. I don't see much causality here, rather I think this decision was very helpful in removing an important constraint on economic vitality in the modern world. The truly huge economic event that drove everything took place in the early 1970s with the Arab oil boycott and the establishment of the Organization of Petroleum Exporting Countries (OPEC), an international cartel that successfully imposed global prices on crude oil. In 1973 directly as a result of OPEC the price of crude oil was increased from $3.50 a barrel to $13.50 a barrel .. and the price stuck with consumers unable to do anything about it. With hindsight it becomes a little clearer why the OPEC cartel was successful. None of the OPEC members were in love with the big powers that consumed the oil, and it is no surprise that they stood together. But it is also fairly clear that there was quiet support from many major participants in the energy world. All the major integrated oil companies stood to gain in multiple ways from the actions of the cartel ... and they kept quiet in public and let the OPEC process move ahead. There were also some important national players that remained on the sidelines, including the Netherlands and the UK that were investing heavily in North Sea drilling which would have been massively loss making at pre-1973 energy prices. The US domestic energy production industry was also a major beneficiary of the OPEC induced higher prices. During the 1970s, the US consumer was face with 'cost-push' inflation. Energy costs in every step of the supply chain were at record high levels, and there was no alternative than to increase consumer prices if a bcompany was going to stay in business. The situation now is very different especially in the USA. There has been 50 years of some effort to reduce the energy efficiency gap between the USA and the rest of the world, and the USA has necome a lot more energy independent than it was in the 1970s courtesy of new technology in the oil patch including 'fracking'. Peter Burgess | ||
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Did Workers’ Wages Skyrocket During the ’70s? Not When You Figure In Inflation.
Written by Kevin Drum ... A blog of my opinions. Plus charts and cats. DECEMBER 10, 2019 Apropos of nothing in particular, you may be wondering why I was so annoyed by Heather Long’s piece on Friday that puzzled over why wage growth today is worse than wage growth during the late ’90s dotcom boom—but did its puzzling using nominal wage figures. Here’s an example that will help to explain. This chart shows hourly wage growth since 1965:
Not adjusted for inflation The story here is that blue-collar wages rose steadily during the 70s, peaking at annual growth of 9 percent in 1980. During the start of the 1981-2 recession, wages grew about 7 percent, and even by the end of the recession wages were rising about 4 percent. After that, wage growth went up and down but always stayed within a healthy range of 2-4 percent. Add it all up, and blue-collar wages increased 226 percent through the end of the Bush administration. The total blue-collar wage increase through today amounts to 600 percent. Does this seem likely to you? If you lived through this era it sure doesn’t. You don’t remember huge wage gains in the ’70s or in the 1981-82 recession, which was the most brutal recession since the Great Depression. And if this is a story you tried to tell—big wage gains during the Nixon/Ford/Carter era, followed by big wage gains during the 1981-82 recession, and then settling down to about +3 percent wage gains for the rest of the decade—you would be badly embarrassed for a good, long time. Here, then, is the same chart but with inflation factored in:
Adjusted for inflation This looks quite a bit different. Wages went up and down in the 70s, but by the end of the decade hourly wages were a dollar lower than they had been at the beginning. In 1979 wages began to plummet, not getting back to positive growth until 1982. The rest of the decade is something of a train wreck for blue-collar workers, with wages mostly declining throughout the entire Reagan/Bush administration and not finally going positive until the middle of Bill Clinton’s administration. In reality, real hourly wages declined from $21.08 at the start of the Reagan era to $19.61 at the end of the Bush administration. That’s a loss of about $3,000 per year, or close to $6,000 per year in today’s money. If you add in the ’70s, it’s even worse: blue-collar wages dropped from $22.42 to $21.94. That’s a loss of $1,000 per year, or a little over $3,000 in today’s money. Put all this together, and blue-collar workers lost the equivalent of $9,000 in modern dollars, which represented a 13 percent decline in blue-collar wages over the course of a couple of decades. The entire period of the ’70s and ’80s was a catastrophe for blue-collar workers. This is how inflation works. Sure, wages grew 9 percent in 1980, but inflation grew 11%. A loaf of bread that cost a dollar at the beginning of the year cost $1.11 at the end. Sadly, your salary of $1 only went up to $1.09. Unless you can borrow a couple of pennies from someone, you can no longer even buy a loaf of bread. That’s how things really are. And that’s why you always show things like wage series corrected for inflation. That represents the real growth and decline of wages compared to the price of ordinary goods that are rising or declining because of inflation. The only exception to this rule applies to arcane studies where the nominal number of dollars might make a difference regardless of the inflation rate. But unless you’re an arcane economist, you’re not likely to ever run into this situation. Moral of the story: Always correct time series of money for inflation. There are no excuses.
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