An interesting case of a widespread misconception

[deisik]

A lot of posters on the forum love to come up with figures showing how much the dollar (the American dollar, obviously) has depreciated over time, like 1 dollar in 1913 was worth 1000 dollars today (or whatever), with the general idea being that "the grass was greener and the light brighter back in the day"

However, what these forum members forget to account for is the rise in wages during the same time span. And the irony is that wages in the US have been outperforming inflation since WWII, barring a few rather short periods. It basically means that people become wealthier over years despite a declining dollar

So much for dollar inflation

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[jackg]

Yeah if you imagine you could but something with a half pence in the 80s and a pound was considered a lot in the past I'd agree with this... Also people didn't have many possessions in the past (some of this could be related to globalisation though like bananas and pineapples used to be ornaments - now they can reach you in 16 hours by plane)...

The advancements in technology are quite considerable since one person used to control everything thst happened in a town in the past (a lot of the time) and now multiple parties can compete... If air shipping went up in price for example, a passenger jet company could take over.

[o_e_l_e_o]

However, what these forum members forget to account for is the rise in wages during the same time span.

Nominal wages have been constantly increasing. Real wages, i.e. wages adjusted for inflation, have not. Observe below the data from the Bureau of Labor Statistics (click for full size):



The average American has never had a higher real wage than that which they had in 1973, despite their nominal wage increasing from $4 to $24. That's two entire generations so far (Gen X and Millennials) with lower wages than their parents/grandparents (Baby boomers). The trend isn't exactly likely to reverse for Gen Z.

[deisik]

However, what these forum members forget to account for is the rise in wages during the same time span.

Nominal wages have been constantly increasing. Real wages, i.e. wages adjusted for inflation, have not. Observe below the data from the Bureau of Labor Statistics (click for full size)

Care to explain how you arrived at that conclusion from these data? As I understand it, for your claims to be true, the inflation-adjusted curve should go under 0, but it never does

The average American has never had a higher real wage than that which they had in 1973, despite their nominal wage increasing from $4 to $24. That's two entire generations so far (Gen X and Millennials) with lower wages than their parents/grandparents (Baby boomers). The trend isn't exactly likely to reverse for Gen Z

Well, I have different data, which actually shows the change in inflation-adjusted wages (more specifically, earnings) over time. It is based on the Social Security Administration wage statistics (link):



As you can see, real annual earnings were outperforming inflation since 1947 till 2007

[suchmoon]

There are significant flaws in the way Consumer Price Index (CPI; the inflation measure used by BLS) is calculated and it's been tweaked over time so historic values don't necessarily compare well to each other. I think it's safe to assume that the government's number is lower than the actual inflation. I could never make sense of how certain expenses like healthcare are showing modest 2-3% increases in the CPI but in reality go up by 5-10%.

[o_e_l_e_o]

Care to explain how you arrived at that conclusion from these data? As I understand it, for your claims to be true, the inflation-adjusted curve should go under 0, but it never does

The gray line, with the scale at the left of the graph, shows the average wage in dollars per hour that the worker was paid at the time. In 1973, that was $4 per hour. In 2019, that was approaching $24 per hour.

The red line, with the scale at the right of the graph, shows the average wage in dollars per hour if paid at the value of a 2017 dollar.

In 1973, the average wage in terms of 2017 dollars was over $23. It has never been higher than that value since. The closet it has got is just now, at around $22.50.

Well, I have different data, which actually shows the change in inflation-adjusted wages (more specifically, earnings) over time. It is based on the Social Security Administration wage statistics (link):

I would suggest you read the paper you have shared that table from, because it does not back up the point you are trying to make.

Look at the 5 categories in the table you have shared. Top 0.1%, top 1%, top 5%, top 10%, and everybody else. The higher earners have experienced real wages increases, yes, but "everybody else" has had wage stagnation. You'll also notice as well that the table picks arbitrary dates - 1979 was already down significantly from the 1973 peak. If you compare to the actual peak, that stagnation turns negative.

Here are a few quotes from that paper:

However, low-wage workers experienced stagnant (in the case of women) or declining (in the case of men) real hourly wages since the late 1970s.

The earnings of non-college-educated men stagnated or lost ground since the mid-1970s.

Most recently, persistent slack in the postrecession job market has led to flat wage growth, stuck at around 2 % in nominal terms, about the rate of inflation, implying flat average compensation in real terms.

For much of the last 3½ decades, trends in real wages for various different groups in the workforce have been stagnant or worse. As shown above, this is true for middle- or low-wage deciles, most education levels, the bottom 90 % of annual earners, and even the national share of labor-based income.

[deisik]

Care to explain how you arrived at that conclusion from these data? As I understand it, for your claims to be true, the inflation-adjusted curve should go under 0, but it never does

The gray line, with the scale at the left of the graph, shows the average wage in dollars per hour that the worker was paid at the time. In 1973, that was $4 per hour. In 2019, that was approaching $24 per hour

So we can safely throw it away

The red line, with the scale at the right of the graph, shows the average wage in dollars per hour if paid at the value of a 2017 dollar

So you agree that after we hit the bottom in 1995, the wages have been rising in real terms ever since then, and that has been the case for 25 years. Point proved

Well, I have different data, which actually shows the change in inflation-adjusted wages (more specifically, earnings) over time. It is based on the Social Security Administration wage statistics (link):

I would suggest you read the paper you have shared that table from, because it does not back up the point you are trying to make.

Look at the 5 categories in the table you have shared. Top 0.1%, top 1%, top 5%, top 10%, and everybody else. The higher earners have experienced real wages increases, yes, but "everybody else" has had wage stagnation. You'll also notice as well that the table picks arbitrary dates - 1979 was already down significantly from the 1973 peak. If you compare to the actual peak, that stagnation turns negative

I think we can stick with the "everybody else" group

And then the annual earnings in the inflation-adjusted dollars had been on the rise since 1979 till 2007. And even if 1979 has been deliberately chosen, you can't discard that growth

Here are a few quotes from that paper

You are cherry-picking. Here's the relevant part:

After having gained 88 % in the first few postwar decades, the annual earnings of the bottom 90 % grew only 17 % since 1979, from about $27,000 to close to $32,000, or 0.5 % per year (one-fourth of the 2 % annualized growth rate for this wage class for 1947–79)

So, all in all, wages outperformed inflation by 17% for 1979-2012, or around 0.5% per year. Again, point proved

[The Sceptical Chymist]

It's not only a misconception on this forum--I've been reading the same crap on precious metals sites for years now, and it's a way that the gold & silver permabulls hype metals and show how they apparently keep pace with inflation.  But anyone with a brain ought to realize exactly what you pointed out, OP.  None of us are earning 1920s (or pick your year) wages or paying 1920s prices for things.  If you consider that labor is just one more thing that gets priced in terms of US dollars, it makes sense that its price has inflated along with everything else, i.e., wages have increased along with the price of food, housing, gas, whatever.

There are significant flaws in the way Consumer Price Index

No doubt, but we're talking about economics and not hard science.  And economists tend to disagree with each other on a lot of things, so I'm sure we'll see the CPI redefined several more times before we're dead.

[Harlot]

Are people really getting wealthy though or is even the increase in income just an illusion that people are getting wealthy? We have students after they graduate will owe debt at the beginning of their first employment, we have mortgages that they have to pay for years, and of course dozens of insurances and other loans that can leech all their money bit by bit. Yeah the increase in income might be greater than the inflation but so is companies having ways to get a pieace of the pie back at them , I might not have the actual numbers but this os what I am seeing in dozens of news and documentaries related to debt in the US.

[o_e_l_e_o]

So you agree that after we hit the bottom in 1995, the wages have been rising in real terms ever since then, and that has been the case for 25 years. Point proved

Except that's not the point you made. Here is the point you made:

And the irony is that wages in the US have been outperforming inflation since WWII

That is categorically not true. Yes, real terms wages are higher now than they were in 1995. That doesn't mean much when they are still lower than they were 50 years ago. If you bought bitcoin at $12k, then you are still in the red despite the price recently increasing from $5k to $10k.

So, all in all, wages outperformed inflation by 17% for 1979-2012, or around 0.5% per year. Again, point proved

And I never said they didn't. But if you look at all the data, rather than just cherry picking the years which fit your preconceived notions, wages have fallen.

If you consider that labor is just one more thing that gets priced in terms of US dollars, it makes sense that its price has inflated along with everything else, i.e., wages have increased along with the price of food, housing, gas, whatever.

I'm obviously not saying that wages haven't increased, but they have increased at a slower rate than the cost of living, resulting in a real terms decrease, as proved by the statistics above.

[Questat]

That's the reason why I don't save all my money in the bank, there was this one guy who suggested me to just put my money in the bank and let it earn interest through time deposit, he was even telling me that if you are earning interest, you will just have to sit and just withdraw your interest income to fund your expenses and life would be easy for you. Unfortunately, I said to myself that he failed to realize how money depreciate in the long run so that interest earned is not enough to avoid that depreciation because of inflation.

The best thing to do is get involved into business or invest on it.

I believe online investment particularly crypto investment is good choice too.

[abhiseshakana]

In my country, an increase in the minimum wage for workers follows an increase in the rate of inflation. The government uses inflation factors and gross domestic product in determining minimum wages. The inflation rate causes the cost of living to be more expensive as prices of goods and services increase. Thus, the value of money decreases, so that people's purchasing power decreases. The rate of inflation every year needs to be balanced with an increase in labor wages so that workers can still meet their daily needs. Therefore, employee salary increases are generally set above the inflation rate.

UMn = UMt + (UMt x (Inflation +% Δ PDBt)).

UMn = Minimum Wage
UMt = Minimum wage for the current year
PDBt = Current Gross domestic product (economic growth)

The higher the inflation, the higher the minimum wage increases. So the actual increase in labor salaries does not improve their welfare because in general, it is only to sustain the needs of a decent living. The necessities of a decent life consist of 78 components, namely food & beverage, clothing, housing, education, health, transportation, recreation, and savings. An increase in labor wages may be able to support for personal needs but even then it is not enough to support the needs of one family.

[deisik]

So you agree that after we hit the bottom in 1995, the wages have been rising in real terms ever since then, and that has been the case for 25 years. Point proved

Except that's not the point you made. Here is the point you made:

And the irony is that wages in the US have been outperforming inflation since WWII

But here's what I actually posted:

And the irony is that wages in the US have been outperforming inflation since WWII, barring a few rather short periods

Now you can start over from this unabridged version of my point

So, all in all, wages outperformed inflation by 17% for 1979-2012, or around 0.5% per year. Again, point proved

And I never said they didn't. But if you look at all the data, rather than just cherry picking the years which fit your preconceived notions, wages have fallen

You may want to stop twisting my words

There was a brief period of a few years in late 1960's when wages peaked after WWII. Other than that, real wages had been rising most of the post-war era. So who is actually picking the years here?

[fiulpro]

A lot of posters on the forum love to come up with figures showing how much the dollar (the American dollar, obviously) has depreciated over time, like 1 dollar in 1913 was worth 1000 dollars today (or whatever), with the general idea being that "the grass was greener and the light brighter back in the day"

However, what these forum members forget to account for is the rise in wages during the same time span. And the irony is that wages in the US have been outperforming inflation since WWII, barring a few rather short periods. It basically means that people become wealthier over years despite a declining dollar

So much for dollar inflation

Let's make something clear . US is a wealthy county , a developed one at that matter. When we are taking about Inflation and wages , we need to look at the developing and the underdeveloped countries where situations are becoming very dire.
We all know how to dispose hazardous chemicals : Neutralize them , set their temperature normal , release them through a filter chamber . But what does these wealthy countries do might surprise you .
They pay the developing countries to throw these wastes in their mountains and forests because they apparently have a lot of it , which causes a lot of biodiversity change.
Due to this unfair inflation , Rich is becoming Richer and Poor is becoming Poorer might be quite true.
It's not just one country we are talking about. Quite the opposite* It's all of them * .
That is why people migrate to those countries for better jobs , better wages , better opportunities and education. Your statement might be true but at the same time you are not even consider *Competition* .
So many Graduates fight for a single job , with the increase in population and resources , education and other exams have made it very tough to get into one. It's not just about one job .
Do you know how many people are jobless let alone in the US?
Millions !!

[o_e_l_e_o]

And the irony is that wages in the US have been outperforming inflation since WWII, barring a few rather short periods

I would hardly call 1973 - 2020, which represents 47 years and 63% of the years since the end of WWII, a "rather short period". For the majority of the time, wages have not been outperforming inflation. If they had been, then why have real wages never been higher than they were in 1973?

There was a brief period of a few years in late 1960's when wages peaked after WWII. Other than that, real wages had been rising most of the post-war era. So who is actually picking the years here?

Yes, wages have been rising since 1995, but the doesn't mean anything when you look at the wider picture, as I explained above. If you buy a shitcoin at $1, it drops to $0.10, then rebounds to $0.20, you wouldn't call that a profit. When real wages fell from $23.00 to $18.50, then rebounded to $22.00, you can't call that an overall rise.

[deisik]

And the irony is that wages in the US have been outperforming inflation since WWII, barring a few rather short periods

I would hardly call 1973 - 2020, which represents 47 years and 63% of the years since the end of WWII, a "rather short period"

I'm curious if you don't understand how elaborately you are cherry-picking here

Seriously, what made you took 1973 as a starting year? Just because wages peaked in that year after WWII? Regardless, since I am talking about the whole post-WWII era, the point which you strongly emphasized yourself, it looks like you should take the entire period of 75 years. So stick to the point

For the majority of the time, wages have not been outperforming inflation. If they had been, then why have real wages never been higher than they were in 1973?

For the majority of the time, i.e. in 1976, 1977, etc, real wages have been outperforming inflation. You don't even seem to understand that "the majority of the time" refers to the majority of the years within that period as both inflation and wages are estimated on a yearly basis

Yes, wages have been rising since 1995, but the doesn't mean anything when you look at the wider picture, as I explained above. If you buy a shitcoin at $1, it drops to $0.10, then rebounds to $0.20, you wouldn't call that a profit. When real wages fell from $23.00 to $18.50, then rebounded to $22.00, you can't call that an overall rise.

So why don't you really take a look at the bigger picture, and start with 1945 as per OP?

[o_e_l_e_o]

Seriously, what made you took 1973 as a starting year?

Pick any year you like. I'm simply using that year because as the data show, it disproves your assertion that wages have been outperforming inflation since WWII, when for the last 50 years they clearly haven't.

For the majority of the time, i.e. in 1976, 1977, etc, real wages have been outperforming inflation. You don't even seem to understand that "the majority of the time" refers to the majority of the years within that period as both inflation and wages are estimated on a yearly basis

Because taking individual years without looking at how well each year is performing is utterly meaningless.

Let's take your example. In the two year period of 1976 and 1977, real wages grew from $21.53 to $22.13. In the 18 months that followed, they fell from $22.13 to $21.36. That's a net loss of $0.17 in that 3.5 year period. You can say that wages "outperformed inflation" for the majority of that time period if you like, but you are purposefully omitting the important data.

[deisik]

I'm simply using that year because as the data show, it disproves your assertion that wages have been outperforming inflation since WWII, when for the last 50 years they clearly haven't

Then what about the last 45 years? And around 30 years before that?

Let's take your example. In the two year period of 1976 and 1977, real wages grew from $21.53 to $22.13. In the 18 months that followed, they fell from $22.13 to $21.36. That's a net loss of $0.17 in that 3.5 year period. You can say that wages "outperformed inflation" for the majority of that time period if you like, but you are purposefully omitting the important data

What important data exactly?

But let me guess, you are talking about that spike in wages in 1973 and a few years before. On that account, you come to the conclusion that during the majority of the post-WWII time the increase in wages hasn't been on par with inflation (lagging behind). However, if it really were so, we would now have real wages lower than they were at the beginning of that period. Aside from that, no matter how you may try to dance around it, even according to your own stats, real wages had been growing before 1973 and have been growing since at least 1995, and outperforming inflation for the entire period of 75 years on average, as well as for the last 25 years. So what are you trying to prove? Your misunderstanding of stats?

[mu_enrico]

However, what these forum members forget to account for is the rise in wages during the same time span. And the irony is that wages in the US have been outperforming inflation since WWII, barring a few rather short periods. It basically means that people become wealthier over years despite a declining dollar

Except for the stagflation period
https://www.investopedia.com/articles/economics/08/1970-stagflation.asp

And thanks to Mr. Free To Choose, the US can get out of the situation.

Other than that, generally, we are in better shape than our grandfathers.

[Ucy]

Ofcourse. Though one of the problems with fiat currency is saving long-term without adequate interest getting to your savings. Not really good as long-term store of value unless your value/money is safely working  for you and earning good interest to compensate for inflation.
     Besides, you'll need to be consumption based economy to avoid this sort of problem. Imagine the harm it will cause to the world if most people are constantly producing and consuming the wrong things or at unsustainable rate.