June 4, 2007

Men's Median Incomes Still Rising Each Decade

Your article "Not Your Father's Pay: Why Wages Today Are Weaker" (The Economy, May 25) states that "American men in their 30s today are worse off than their fathers' generation." That would lead readers to believe that median incomes for American men in their 30s are falling when, in fact, the opposite is happening. As the article shows, median incomes for American men in their 30s were $35,010 in 2004 vs. an inflation-adjusted $32,901 in 1994, an increase of 6.4%. The intergenerational comparison by the authors, however, is with 1974, for which the inflation-adjusted median income was reported at $40,210. In other words, the statistics aren't saying that incomes are falling. They are just saying that the inflation-adjusted income in 1974 was much higher than the inflation-adjusted income in the decades since 1974, just as the inflation-adjusted income for 1974 was higher than the figure reported for previous decades.

The U.S. had wage and price controls in the mid-1970s, and many economists who have studied the CPI data from that era believe the effective rates of inflation were underreported. As every economist should know, price controls may reduce the reported prices for transactions, but they can't reduce the total costs of obtaining an item, which must include the personal costs associated with items not being available. Hence, the CPI in 1974 is understated and, consequently, inflation-adjusted wages for that year are overstated. That is the most likely reason that the median inflation-adjusted incomes for 1974 are higher than for both the preceding and the following decades. When that anomaly is eliminated, we can see the inflation-adjusted median incomes for men in their 30s rising every decade.

Christopher R. Petruzzi, Ph.D.

Professor of Accounting

California State University, Fullerton

Fullerton, Calif.