‘Real wage’ statistics suggest economic progress when there is none. And breaking up households into ‘quintiles’ suggests no progress is possible. To inspire people to tackle extreme inequality, and better reflect economic reality, we need to measure economic progress differently
analyze ‘wage progress’, not ‘real wages’
In the progressive era, economists learned to measure family budgets and how well they kept up with the cost of living. Today however, adjusting wages and income to the consumer price index is a misleading measure of economic progress.
During our era of extreme inequality, total compensation has kept up with the cost of living, while falling far behind productivity. To tackle extreme inequality, we need to measure how well wages and income are keeping up with the economy. We need to think in terms not of real wages but wage progress.
index wage demands to the economy not cost of living
Coming out of the Second World War, the autoworkers union unsuccessfully proposed pegging their wages to increases in the economy. Overtime, unions and liberal electeds came to accept the lesser demand of wages merely keeping pace with the cost of living.
The much ballyhooed $15 per hour wage standard, indexed to the consumer price index, will still be $15 in real terms forty years from now. Yet by then, the economy will likely have doubled, suggesting the wage standard could have risen to $30 per hour.
Progress minded activists need to demand union wages and government mandated standards better keep up with the economy.
measure household income progress with benchmarks
In analyzing inequality, we typically study historical income changes by dividing households into quintiles. This relative measure suggests that poverty, a.k.a. the back 20% of the income structure, will always be with us.
Relative measures do not inspire people to become political activists. To participate in politics, they want to know their lives can be better. In analyzing inequality, we need to use absolute measures that quantify economic progress.