Riddle me this
There are a couple of competing claims running around the political spheres. I'ld like someone to reconcile the mutually exclusive conditions promoted by the same people.
Wages are not keeping up with inflation.
Re-indexing Social Security Benfit increases from wages increases to price level increases will result in a drop in the rate of growth of social security benefits.
So which is growing faster? General price levels or wages?
Wages are not keeping up with inflation.
Re-indexing Social Security Benfit increases from wages increases to price level increases will result in a drop in the rate of growth of social security benefits.
So which is growing faster? General price levels or wages?
posted by Justin at 3:10 PM
8 Comments:
Not having seen the first claim in context, I can't be sure, but a couple of questions come to mind:
1. Whose wages are not keeping up with inflation? Is the claim that overall wages are not keeping up with inflation, or just that wages for those on the lower economic rungs are not keeping up with inflation? I do know that the BLS has reported that wages for hourly workers are not, at this time, keeping up with inflation. That isn't necessarily the case over the long-term, however.
2. Assuming we are just talking about wages for hourly workers, what percent of overall wages do they make up? If, for example, the wages for non-hourly (presumably management) are high enough to constitute a significant minority of overall wages, then larger increases on those could, in fact, drive up overall wage increases to greater than inflation. Nonetheless, this would not benefit hourly workers.
This still leaves the long-term vs. short-term argument. Although wages for hourly workers are not keeping up with inflation in the short-term, that does not necessarily mean they are not keeping up with inflation in the long-term. I haven't seen statistics one way or the other. I could research it, but at this moment am feeling slightly too lazy to do so. So, if wages are, in the long-term, exceeding inflation, then presumably switching to inflation indexing will, in the long-term, drop in the rate of growth of social security benefits, even if that wouldn't necessarily be the case in a given year or short range of years. Much like even though the stock market may decline in the short-term, over the long-term, you can expect to see increases greater than inflation.
BTW, I don't have a Blogger profile, so this will show up as Anonymous, but it's Lesley.
I'll leave the question of whose wages are or aren't keeping up with, or outpacing, the rate of inflation for someone else to answer. I don't have the patience to dig into that. What concerns me, and should concern younger people, is the talk about changing the indexing of Social Seurity benefits from wage indexing to so-called "price indexing". That change would, in the long term, result in drastic reductions to the percentage of the wage benefit. The Center on Budget and Policy Priorities gives a pretty thorough analysis of the proposed change. Following is a brief excerpt from their online article:
"According to the Social Security actuaries, Social Security benefits currently equal 42 percent of the earnings of an average wage-earner who retires at 65. This percentage is slated to decline to 36 percent over the next two decades, as Social Security’s “normal retirement age” rises to 67. It would remain at 36 percent thereafter.
The actuaries also estimate that under the proposal the President’s Commission advanced, Social Security benefits would, by 2075, equal only 20 percent of an average wage-earner’s pre-retirement earnings. The percentage would fall to even lower levels in years after that."
Ponder that for a few minutes. There have to be fairer ways to keep Social Seurity solvent and even meaningful.
By the way, I'm Lesley's anonymous father.
Anonomous= Plane_talker
Wages are raised by employers who need to attract workers or keep workers who might be attracted elesewhere.
Minimum wages are raised by congress or state government.
Inflation robbs the Dollar of buying power at about the same rate that the economy provides more dollars to the worker , there is a lag time but the relationship should be viewed as the length of time it takes a worker to earn an item reguardless of the price or the wage.
It becomes very hard to compare apples to apples instead of oranges because the nature of wages , work , currency and products is so fluid , only a few things have remained the same for a long period of time.
Lets imagine that one of the things that is the same is the work of shoeing horses, That is still done and it still pays pretty well.
An excellent farrier might shoe a lot of horses and make $20 in two weeks in 1897 , mabe even better .
He might be paid in a twenty dollar gold peice (a doubble eagle) and with that he might buy a rifle a 97 model Winchester.
Well they still shoe horses , they still sell 1897 model Winchesters, can a farrier expect to earn about the price of a rifle in two weeks? If he is paid with a twenty dollar gold peice I recon so.
Hi Justin! Great blog - keep on posting! I always learned quite a bit from you used to post in PIC and look forward to doing it again.
Anne
When you say lower income level wage earners wages do not keep up with inflation I believe you are mistaking the income strata with the people who populate it at a point in time. Entry level wage earners earn little, and they are typicall the same demographic group across time, though not the same people. There is a reason for entry level wages to trail those beyond that stage in their wage earning cycle. Part of it is the incentive to improve oneself and move into a more reqrding job. Part of it is simple supply and demand. Anybody can wait tables, fewer can fix Microsoft exploits. People move between income strata over time. True the bottom quintile has the lowest rate of inter-quintile movement across a decade. (@40% are still in the bottom quintile across a decade) But who are the bottome quintile (wage earners) Some are those who have retired, and therefore have littel or earned income. With longer lifespans (a "problem" I hope to have) retirees remain in the bottome quintile longer than in previous decades. Who else is in the bottome quintile?
Contrary to the concern about the rate of benefit increases falling, I am concerned that the rate is too high. There is no way to maintain the current tax structure and the current rate if increase without impacting what the governmetn ought to do.
Social Security, as old age welfare, without means qualification (means testing) is doing something the governmetn ought not do. The government shouldn't be in the business of doing for someone what they have the means to do for themselves. The over 65 age group happens to be the wealthiest age group in the nation. Want to maintain, or increase the rate of increase in benefit payment< Fine, means test it and cut those with the wealth out of the program, then we can take better care of those without the wealth - at a lower total cost.
I have no problem with means testing in order to qualify for SS benefits, Justin.
As of 2002, the median income in households of those 65 and older was a bit over $23,000. In most areas of this country, living on that amount is not easy to do - especially given the cost of uncovered medical expenses incurred by most people in that age group.
Income is not typically the best indicator of means, especially for retirees. Wealth is the betetr indicator, and the elderly are the wealthiest in the nation.
As the old saying goes, you can't take it with you, so the income on accumulated assets (often with limited tax exposure) and then the assets themselves are used to pay the bills.
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