Wages: Have they kept up with inflation?
A non-scholarly look at economics and the state of our country.
Then and Now
In 1970, there were 63,400,000 households in America. The median income per household was $9,870 per year. This median means half of the households made more than $9,870, and half earned less.
In 2020, there were 128,500,000 households in America, and the median income per household was $68,400.
According to the Bureau of Labor Statistics, Inflation between those two years was 567%, while wages went up by 590%. That sounds good, right?
Cost of Living
How about buying a house in either of those years? In 1970 the average price of a home was $17,000; in 2020 that number was $280,000. Whoops, that’s a 1,550% increase. That makes that 590% rise in wages looks puny.
Let us see if we come out any better buying a new car. In 1970 a new VW Beetle cost $1,899; in 2020 the cost was $25,300. That’s up 1250%.
The cost of going to college should not have changed that much, right? The University of Minnesota Twin Cities Campus charged $522 in 1970; in 2020, they charged $15,142. Holy Cow, that’s up 2,800%.
Now how do you feel now about your 590% salary increase?
What other expense do you have in 2020 that you didn’t have in 1970?
Here are a few examples:
- Internet $50 a month
- Cable $50 to $100 a month
- Smartphone $35 to $50 a month
- Health Insurance $500 to$1,500 a month.
What about CEO pay? In 1970, the CEO of JP Morgan made $276,250; in 2020, he made $31.5 million. If your $9,870 had gone up by the same percentage, you’d have earned $162,855 in 2020, not $68,400.
If your $9,870 had gone up the same as college tuition, your salary in 2020 would have been $286,230 rather than $68,400.
What about the profitability of American corporations during that period?
According to the Federal Reserve Bank of St. Louis, total corporate net profit in 1970 was $55 billion, and the top corporate tax rate was 46%. In 2020, corporate net profit was $1.9 trillion, and the top tax rate was 21%. So median household income went up about seven times, and corporate earnings went up about 35 times.
We’ve learned that 64,500,000 households in America earn $68,400 a year or less. While that wage may work in many cities, if you have kids or college debt, or daycare, or live in a high cost of living city, it might be a real struggle. Additionally, state and federal taxes have to come out of that $68,400; FICA taxes alone would take 7.65% or $5,232 from this wage.
So how do we fix this?
From another perspective, 82% of all American jobs are called Production and Non-Supervisory positions. Cornell University publishes a Job Quality Index for jobs in that category, which they divide into “high paying” and “low paying.” As of February 2021, the “high paying” category had 43.6 million positions at a median salary of $61,416 per year. The “low paying job count” was 53.8 million positions with a median pay of $35,464 per year.
Again, some people are doing just fine. But many are struggling. We need to figure out how to fix that.
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