Data and anecdotes

by John Quiggin on May 1, 2008

Among the outcomes produced by a market economy, real wages are arguably the most important single variable for most people. With inflation rising around the world, and sensitive prices like those of food and petroleum going up a lot, most people’s living standards depend mainly on whether wages grow faster than prices. I got a couple of pieces of info on this today, which illustrate the difference between data and anecdote.

In my morning email, the US Bureau of Labor Statistics (pdf file) advised that the US employment cost index (hourly wages + benefits) rose by 3.5 per cent last year, less than the inflation rate of about 4 per cent*. This continues a trend of declining real wages since 2000.2003.

This afternoon, I looked at the NY Times to see a story about stagnant real wages in Europe, which began with a lengthy voxpop about a couple who had bought a breadmaker because baguettes were too dear, and continued in much the same vein. Deep within the article was the information that eurozone prices have risen by 22.5 per cent since 1999. But despite various claims about the declining purchasing power of wages, there is not a single piece of statistical evidence on wages anywhere in the story. Instead, we got a lengthy and inevitably inconclusive discussion of what constitutes the “middle class.

A quick visit to Eurostat reveals that Eurozone wages have risen about 30 per cent since 2000. German wages have increased by about 20 per cent, so the article’s claims of stagnation appear to be about right for Germany, but not for the EU as a whole. Of course, to do things properly you’d want to consider the impact of food prices on low-income households. But given the focus on the middle class, it seems reasonable to suppose that the price index measures the standard of living for the average middle class household reasonably well.

It seems sad that the NY Times has to cover issues like this by anecdote, but I guess it gets them a lot more readers than the BLS email statistics series.

* The US Fed prefers to focus on the “core” inflation rate, excluding food and energy prices, a use of “core” even more impressive than John Howard’s. so it says the rate is about 2 per cent. And the reforms to the CPI introduced by the Boskin Commission in the 1990s reduced the measured inflation rate by a percentage point or so, meaning that the current rate is comparable to 5 per cent inflation on the measures used in the 1970s and 1980s.

Update I’ve corrected the starting date for the point at which real wages started falling behind inflation in the US. The rate of real wage growth declined after 2000, but didn’t become negative until 2003.

{ 36 comments }

1

Brendan 05.01.08 at 8:38 am

I heartily share your annoyance with voxpop stories, especially when the statistics that are left out wouldn’t be that hard to understand. My mother, a lifelong newspaperwoman, always told me when I griped about this that the conventional wisdom in the newspapering business is that you always have to hang an abstract story on a personalized peg, or no one will read it, but she did agree (maybe just to shut me up) that the data should appear after the jump, at least.

I suspect it’s a little more than that, though. Many newspaper reporters have math phobia or at least math laziness, and they know they’re not going to get called on it for writing a voxpop piece by their editors or most of their readers, particularly NYT readers.

So, thank you for your effort, and I hoped you CCed your post to the author of that NYT article.

2

Stuart 05.01.08 at 8:39 am

The US Fed prefers to focus on the “core” inflation rate, excluding food and energy prices,

And in theory this seems eminently sensible for the Fed to do in general, used as a way of deciding whether to raise or lower rates. The reality of course seems different at the moment – the Fed seems more concerned by matters other than inflation anyway.

It is not as if the BEA and others are using CPI Core to calculate GDP figures, so not sure what the problem is here, unless you are complaining about the medias increased reporting on CPI Core to the exclusion of other official inflation figures, but then this makes some sense as well, as it is the measure of inflation that effects people most immediately (as the Fed sets rates off it sometimes).

3

John Quiggin 05.01.08 at 9:08 am

The Fed’s policy would make sense if the stated rationale for the Core (oil and food prices more volatile) were correct. In fact, oil prices have been rising steadily for years, and now so are food prices. So excluding them means, in effect, raising the inflation target. Fine if they want to do that, but they should say so.

4

Dave 05.01.08 at 10:34 am

It is particularly noticeable in French public discussion that the “pouvoir d’achat” [purchasing power, i.e. “real wages”] is reified as almost the sole object of concern. This may be quite reasonable, in theory, but what it seems to lead to is a discussion of how the government can use administrative muscle to force retailers to lower prices, rather than a debate on whether actual wages ought to be higher. It moves the process of earning the money people spend out of sight. Very odd, or understandable in a polity where state action is still, despite “Sarkosisme”, seen as the answer to most problems?

5

Stuart 05.01.08 at 10:44 am

Do the Fed really act as if CPI Core was just a new and better CPI measurement and only step in at the same absolute values they would have under the old measure though?

This graph seems to suggest that after 2000 (but before the rate rises starting in 2005) the Fed was pursuing a policy of cheaper money (the funds rate hovering at about the rate of core inflation), but this is no different to the policies during Bush Seniors reign. Interestingly during Clinton and Reagans later term the Fed seemed to be looking to keep the funds rate 3-4% above that of core inflation (not that the measure existed at the time of course).

The policies followed in recent years (until the credit crunch) don’t seem to be completely atypical though, so it doesn’t seem as if the Fed has used the new measure to act outside their recent historical norms.

6

JohnTh 05.01.08 at 10:53 am

Dutch public discussion on economics also frequently revolves around ‘koopkracht’ (purchasing power), often split into the purchasing power of the poor, and that of the rest. Discussions like taxes, health insurance etc are usually reviewed in the media in terms of their impact on purchasing power rather than GDP etc.
It seems pretty sunsible to me, and since I lived there I’ve always been surprised at how little this is done in the UK and US

7

David Weman 05.01.08 at 10:56 am

“It seems sad that the NY Times has to cover issues like this by anecdote, but I guess it gets them a lot more readers than the BLS email statistics series.”

This is nonsense, John. There’s nothing about interviewing people and giving trends a human face that compels you to invent trends or even spin facts a certain way.

The NYT’s readership is presumably somewhat leftleaning, so pandering to them would be better for business than pandering to rightwingers.

US coverage of Europe almost always have a rightwing slant. The NYT is generally rightleaning when it comes to economic issues, and the foreign correspondents bias tends to be less subtle and more egregious.

8

Linca 05.01.08 at 10:57 am

Public sector wages in France (such as the couple being described) have certainly not risen 30%, nor 20%, since 2000. Also, housing is rising faster than inflation and is not counted in inflation figures.

Another problem of talking about “wages rising” is that not all wages are rising equally. If only the higher wages are rising faster than inflation, as is the case in France where inequalities of income are shooting up, most people do see their purchasing power reduced.

9

Dave 05.01.08 at 11:05 am

@7: indeed, but I was querying what seems to be the response, which is to get the govt to press for lower prices by administrative fiat.

10

Great Zamfir 05.01.08 at 11:38 am

Johnth: I never realized this, but you might have a point that “koopkracht” calculations are more common in the Netherlands. But keep in mind that those figures are more complicated than just growth minus inflation. I think their main point is to show the net effect of yearly changes in taxation and benefits, more than the effect of inflation.

Another point is that the calculations are performed for ‘typical’ households instead of somehow averaging over a group. The good thing is that this doesn’t allow growth for the rich to hide shrink for the rest, but the downside is that is encourages politicians to aim their policies at the ‘typical’ households.

A last thing: those calculations are done by the ‘Centraal Plan Bureau’ and the ‘Centraal Bureau voor de Statistiek’. I can imagine that Americans would be rather allergic for those names…

11

derrida derider 05.01.08 at 11:43 am

David, there’s nothing wrong with illustrating a story with anecdotes. But a decent journo will first make sure that the story is true, and for that you need data, not anecdotes.

12

Linca 05.01.08 at 12:04 pm

The thing is, middle-class wage earners are not part of the core of the Sarkozy voting coalition ; which consists of pensioners, small shop owners, professionals, racists…

The press may be able to believe “pressing on supermarket owners to lower prices” to be a credible policy on purchasing power, the public sector workers certainly don’t.

13

Praisegod Barebones 05.01.08 at 12:18 pm

JohnTh

But surely money earned is real, whereas purchasing power is just some bizarre statistical abstr….

ok, ok, I’ll be a good boy and not troll in an economics-based thread.

14

JohnTh 05.01.08 at 12:29 pm

GZ,
It is true that focusing discussion on derived variables like ‘koopkracht’ is an outcome of the more technocratic nature of Dutch government (inc. powerful statistical statistical and planning agencies). However, a bit more focus on purchasing power and median real wages by socio-economic group would certainly be a useful corrective to some of the economic discourse in the US and the UK, where growth in GDP and mean wages seem to be more important, despite the fact that these have substantially been driven by changes for the top income quintile in the last few years.

15

Stuart 05.01.08 at 12:41 pm

A last thing: those calculations are done by the ‘Centraal Plan Bureau’ and the ‘Centraal Bureau voor de Statistiek’. I can imagine that Americans would be rather allergic for those names…

How about the Bureau for Labor Statistics? Loses the vaguely communist associated ‘Central’ but gets Labor inserted instead, which is in the same ballpark for some senses of the word.

16

Great Zamfir 05.01.08 at 12:56 pm

If it had been the Labor Bureau for Statistics, I would agree. The People’s Bureau for Statistics would have been even better

17

John Emerson 05.01.08 at 1:12 pm

“The NYT’s readership is presumably somewhat leftleaning, so pandering to them would be better for business than pandering to rightwingers.”

Presumably. But the advertisers are a newspaper’s main market, and a lot of NYT ads are institutional ads selling no particular product. Furthermore, almost all media are owned by diversified groups with multiple financial interests, and the family owned publications, which are probably the least diversified, have an enormous interest in the estate tax.

Readership is certainly a factor affecting a newspaper’s profitability, by newspaper readers aren’t the only target market.

One poster here suggested that the new Murdoch ESJ is going head-to-head with the Times in a death match competition for the ultra-right super-rich readership, and that the generic middle class isn’t important to them.

Without a new and better publication, the loss of the Times or the Post, though just, would not be something to celebrate. If one of the non-right-wing big money people, someone like Soros, were to buy McClatchie and use it as the core of a completely new operation, they could transform the U.S. political scene, but none of them seem to have that level of imagination and committment.

That would be a very large, very risky venture, but it would not be a sure money loser. certainly it would be a better, much more meaningful legacy than another goddamn endowment to another goddamn university.

18

Witt 05.01.08 at 3:30 pm

Many newspaper reporters have math phobia or at least math laziness

IME, the primary reasons newspaper reporters don’t include statistics in a story are:
1. They don’t know which statistics to look at and don’t have time to research the answer.

2. They don’t feel confident in their own ability to interpret statistics and are worried about being caught in a “Gotcha!” (either by a math-literate reader or by a politically-disagreeing reader)

3. Their persona includes a kind of savvy or worldweariness that leads to a “pox on both their houses” reflexive mistrust of statistics.

You can sometimes combat #1 if you are a trusted source and can explain things clearly. I’ve probably taught two dozen reporters how to use the Census Bureau’s American Fact Finder tool.

The only thing you can do about #2 is praise editors for hiring statistics-literate reporters and encourage them to hire more. I try to send e-mail when I see an article that handles something well. David Leonhardt (sp) at the NYT has done this.

#3 makes me want to beat my head against concrete. I have no idea what to do about it.

19

John Emerson 05.01.08 at 3:43 pm

Blood running in the gutters, Witt. Easy.

20

Donald Johnson 05.01.08 at 6:20 pm

“The NYT’s readership is presumably somewhat leftleaning, so pandering to them would be better for business than pandering to rightwingers”

They’re not pandering successfully to me. I’m leftwing and I hate the NYT.

That gripe aside, from the viewpoint of the NYT’s economic interest, should they pander to their readers or to their advertisers? Or is there some third group?

21

someguy 05.01.08 at 7:01 pm

It really isn’t all that easy.

I don’t think it is so much math or statistics illiteracy as topic illiteracy.

It just seems that good summaries of such data are not readily available.

It seems to be there is a decent amount of overhead in familiarizing yourself with the various measures and there seem to be plenty of measures.

‘In my morning email, the US Bureau of Labor Statistics (pdf file) advised that the US employment cost index (hourly wages + benefits) rose by 3.5 per cent last year, less than the inflation rate of about 4 per cent*. This continues a trend of declining real wages since 2000.’

Ok. With John’s helpful pointer I looked around and it took me 10-15 minutes to check. I was honestly curious.

This is what I found.

http://www.bls.gov/web/ecconstnaics.pdf

ftp://ftp.bls.gov/pub/suppl/eci.ecconst.txt

I think the two data sets are the same. But I am not sure. So it looks like in constant dollars real wages, ECI wages + benefits, have risen 4.86% since 2001 and 6.09% since 2000 in the US.

Which may not be great or even good but is a good bit better than declining real wages since 2000.

Now, maybe, John is about to put a smack down on me, and show that real wages as in ECI, have been declining since 2000. That would be ok with me. It would just back up my point. This stuff isn’t necessarily easy.

Putting it into context and making subjective judgements is even harder.

For a lot of reasons, I always think that the US should be compared to Germany, the UK, and France and not Europe as a whole.

So, while I don’t think the US numbers seem great or even good, they seem better than Germany’s.

And is that right? I would think Germany accounts for a 1/3 of Eurozone output. Real wages are down 2.5% in Germany but up 10% in the Eurozone as a whole since about 2000?

I would guess integration has been hard on Germany but that doesn’t seem right.

I just think these summaries are not that easily done especially when comparing the US to Europe.

22

abb1 05.01.08 at 7:36 pm

Someguy, I’m looking at your ecconstnaics.pdf file; how do you get 4.86%? I see total employment costs (table 1) for December
2001 97.0
2002 97.9
2003 99.8
2004 100.3
2005 100.0 – this is their baseline
2006 100.8
2007 100.0
That’s 3% increase since 2001, no increase since 2003.

Wages and salaries without the benefits (table 8) are slightly down since 2001.

23

John Quiggin 05.01.08 at 7:49 pm

I’ve edited the post to correct on this point.

Someguy, I think your general point is right. It is hard to do this stuff, and its unsurprising that people find it easier to do voxpops.

I also agree that the most relevant comparisons are with Western Europe. This has become a bit more difficult since the euro.

24

someguy 05.01.08 at 8:07 pm

abb1,

Page 3 Table 4 All Workers Civilian Workers.

Mar 2001 94.2
Mar 2008 99.2.

And I get no increase since Sep 2003.

And I totally missed John’s update at the bottom of the post. (Kind of glad I did.)

It was only John’s direction that allowed me to find the ECI data.

It would probably take me a long while to rummage around Eurostat and see what the situation was for the Eurozone in the same time period.

And then I would be left with the difficulty of comparing the two measures.

25

abb1 05.01.08 at 8:40 pm

Oh, March, OK. I wonder, though, how it can drop by more than a point from June to September in the same year (2005). Was there a huge jump in inflation or something?

26

aaron 05.01.08 at 10:20 pm

I used to look at the BLSs consumption data. From that, it wasn’t until ~ ’05 that consumption increases outstipped income increases for the poor. For the first half of the decade, I think it could reasonably be said that income inequallity was decreasing. But I think that the rising prices that followed quickly washed away any gain.

I think this was mostly caused by high gas and energy prices (before inflation was focused on luxery goods, energy drove up the cost of the basics).

27

John P 05.02.08 at 12:42 am

How disappointing. I thought you were going to discuss polyanna creep, a concept I was introduced to in an article by Kevin Phillips in the current (May 2008) issue of Harper’s.

28

SG 05.02.08 at 2:51 am

My explanation for these stats-free feelgood stories is that journalists are stupid. They were the dumbest people you knew at University, and they’re generally just dumb. Sure the odd one rises above the pack to almost the level of intelligence of the rest of the population, but most of them are stupid.

I read in the Daily Yomiuri on Tuesday (?) an imported article about life for ex-pats in Europe and how bad it has become since the dollar started diving against the Euro. Life for those expats is so bad, the article told me, that some expats have taken to buying potted flowers so as to reduce the weekly expense of buying cut flowers. Perhaps you can sympathise, Abb1?

Middle class, university educated and profoundly stupid. Is there any worse combination of traits for a profession?

29

Brendan 05.02.08 at 3:37 am

@18:

Witt: I think you’re right about all this, but I’d add to your #3 the fact that many reporters are innumerate going in, and never do anything to address this. Most of them come from a liberal arts or poli sci educational background, and not a week goes by when I don’t hear one of them say, proudly, “I can’t even balance my checkbook!”

30

abb1 05.02.08 at 7:47 am

Pertty much every town around here designates itself as “ville de fleur”. Flowers are very important, not a joking matter.

31

Peter Whiteford 05.02.08 at 10:40 am

I think that one of the main explanations why some European countries have a lively debate about “purchasing power” which seems to be lacking in some of the “Anglo-Saxon” countries is that in fact the purchasing power of net wages varies widely.

Have a look at Table 1.3, in particular, in http://www.taxjustice.net/cms/upload/pdf/Taxing_Wages_2003.pdf. This unfortunately is a bit out of date and a more up-to date version can be found on the OECD website at http://www.oecd.org/document/57/0,3343,en_2649_37427_40255097_1_1_1_37427,00.html but not one with the same table. (Those with OECD access might be able to find a more up-to-date version.)

It can be seen that the gross cost of employing someone at the average production workers wage is actually very similar in France, Italy, the US and the UK – around USD 34,000 to 36,000 (PPP adjusted), but while around 29-31% of that goes for taxes in the US and the UK, in France it is 48%, with employer social security contributions being the largest component (and 45% in Italy). Because employer social security contributions are paid directly from business to government they tend to be invisible to workers, or not very transparent at least.

So disposable incomes for similar workers are about one-third higher in the UK than in France in purchasing power even though the cost of employing production workers is about the same in both countries. Now of course for your higher taxes in France you are getting a very good health care system, extremely generous unemployment benefits for the middle class (the most generous in the OECD), much higher public retirement pensions, free schools and universities, great public transport etc etc. However, you do have less money left over for discretionary spending, so when the price of life’s little luxuries or necessities goes up, you tend to notice it more immediately.

32

Barry 05.02.08 at 12:19 pm

I’d like to point out that the sheer difficulty in finding and comparing statistics is pretty much a first-time problem; once you know where to go, and what’s comparable, the effort is much less. Which is to say that *professional journalists* have no excuse whatsoever in avoiding such statistics, because the initial effort would be a career-enhancing investment. Assuming, of course, that communicating the truth is what a professional journalist does.

33

abb1 05.02.08 at 12:22 pm

34

paul 05.02.08 at 2:25 pm

Whether the reporters themselves are smart or dumb is irrelevant. That’s like judging the intelligence of an actor by the snappiness of the lines they utter.

There are particular narratives that it’s the job of the mainstream press to promulgate, and actual statistics are not part of those narratives because they’re not as amenable to manipulation as other kinds of reported fact. (They’re also not as clearly intermediated — anyone can look up the numbers, but only A Reporter From The Times can find just the right people in europe or middle america to interview.)

35

Hal 05.03.08 at 9:20 pm

“Core” inflation was put into effect to reduce the amount of increases in Social Security payments and Cost of Living clauses in contacts.

I would receive about 70 to 100% more in SS if food and energy was counted.

Plain and simple anyone who believes any of the government figures such as CPI or unemployment is dreaming.

Most if not all are worked over to reduce the real figures.

Try Google on CPI, unemployment or others with the word “problems” and you will hit a gold mine.

When they do figure food just one of the rules is if they are costing out steak and it jumps in price instead of reporting that they change to hamburg because all Americans change to hamburg…..right????????

Just yesterday one of the business channels was reporting that the Fed by reducing the interest rate would reduce mortage and auto rates.

Today they reported that mortage rates has risen.

Figures don’t lie but liars figure…

hal

36

michael e sullivan 05.06.08 at 5:22 pm

modern technology has made the quality of our hamburger so good, that it might as well be steak!

It’s a simple matter of quality substitution.

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