Wednesday, August 12, 2009

"Average" Real Income of the Population

Yesterday's post about the number of hours worked by the "average" person in the population (full details here) had some great feedback and an additional request. Before moving on to that, here is an additional chart showing the relationship (strong) between the number of hours worked by the average member of the population and growth in the economy.

And now the request (bold mine) by an anonymous reader:
Now to get the real "eye popper".... multiply the last graph (the red hours worked in the above chart) by the trend in wages. That will reflect the "earning power" (hence spending power) of the population.
Taking the previous chart and multiplying the data by the average hourly wage (I used private wages found here, but open to suggestions if there is better data) going back to 1964 and adjusting to 2009 $$ (via the CPI index), we get the following:

Interesting. Despite the spike in real hourly wages to levels last seen 30 years ago (due to a steady level of pay and deflation in recent months), average weekly wages are down to levels seen in the late 1990's (due to the decline in hours worked).

My guess is that the number of hours worked may be bottoming, but the real hourly wage increase we've seen has a large correction coming sooner than later. Thus, expect the weekly figure to continue its steep descent.

That said, anyone care to help with an explanation the movement in the 1960's and 1970's?


  1. thanks Jake. that was me yesterday with the "eye popping" request. I appreciate the follow up.

    the labor stats show that in 2009 wage rates are starting to "roll over".

    I guessing in this economy, asking for a "raise" is "culturally" out of the question.

    As for the 60s and 70's, women came into the work force, and were working "similar" hours but for less pay.
    Dollar/gold standard got dumped in 70's...but you adjusted for CPI.

    It might help to overlay recession periods on the graph?

  2. Jay Weiser, Assoc. Prof of Law & RE, Baruch CollegeAugust 12, 2009 at 9:08 AM

    1960s-1970s: Vietnam War soaks up men in workforce (500,000 troops there at peak) and causes inflationary boom starting 1964. It winds down by 1974.

    Baby boomers (1st cohort born 1946) start entering the workforce in 1974, putting downward pressure on wages.

    And the Arthur Burns Fed liquidity surge to elect Nixon (1972) and the first oil crisis kicked up inflation faster than wages could catch up.

  3. Jay Weiser, Assoc. Prof. of Law and RE, Baruch College.August 12, 2009 at 9:12 AM

    I can't subtract. The baby boomers don't start entering the workforce in 1974 , but in 1964, so that's not an explanation

  4. I wonder how much this is affected by the high end workers. Average values can be a poor choice (but maybe the only one avaiable?). Is there data on median wages? Would that show the same effect

  5. To add to Professor Weiser, the defense industry and NASA was also going full throttle in the 60's and was all cut in the 70's.

  6. dougie on asking for a "raise"...and droping wages.

    See here:,8599,1915812,00.html

  7. A different thought: In this time series, only in the last year have we seen a massive disconnect between hourly wage and weekly income--both directionally and in size.

    What, if anything, does that say about the future. My guess: Hourly wage will decline, but weekly income stabilize as more workers are (re-)hired.

    Thanks for the work.

  8. First, glad to see you've become a devotee of YoY; amazing how clarifying it is, isn't it ? Think there are three things going on but let me start with this chart:

    My preferred metric is cumulative net new jobs, using 150K/month required for breakeven. You'll notice that by that measure the only period where real new jobs were created was in the tech bubble, that our jobless recovery sent us into the downturn -2million down and we're now down about -12million.
    1. The 50s and 60s were periods of major new industries (innovation) which led to major job creation.
    2. Women entered the workforce (cf. E:P) but most importantly
    3. Innovation petered out in the '80s and there was a failure to create "good" new jobs.
    Hence flat real incomes, jobs pressures, l.t. economic malaise and the structural malaise that policy needs to address.
    On that topic try:

    Sorry for all the cites but it's a BIG topic !

    BZ btw !

  9. Thanks a lot! It is very useful. However, given the highly unequal distribution of the increase in wages over the last decades, wouldn't it make more sense to use median wages instaed of average wages?

  10. let me know where i can get a median hourly wage going back to 1964 and i'll use that