Wage stagnation in the US: more than meets the eye

If you can, always look below the surface of data.

Via the Economist journalist Daniel Knowles comes a good example of why its important to look below the surface of statistics. American economist Steve Landsburg addresses a commonly heard refrain – that the wage of the median worker has barely risen in the past thirty years – and shows that all is not as it seems.

Landsburg cites a book by economist Edward Conard (first chapter, containing what we're talking about, here), which itself cites the Census Bureau. I confess that, without a more specific citation, I can't find the exact data Conard uses, but have found similar enough data (pdf, table A-5) to confirm the overall thrust of the argument.

Conard shows that from 1980 to 2005, median income in the US rose just 3 per cent once inflation is taken into account, from $25,000 to $25,700. 2005 is pre-crash, as well, so this isn't a tale of the recession.

But when you break the data down by race and gender, a very different story appears:

  1980 Median 2005 Median Increase
All Workers 25,000 25,700 3%
White Men 30,700 35,200 15%
Nonwhite Men 19,300 22,300 16%
White Women 11,200 19,600 75%
Nonwhite Women 10,200 16,500 62%

For every single demographic group, there was a much bigger increase in the median wage than we see when the groups are combined. The reason for this is obvious when it's pointed out: demographic change in the US means that there are far more (low-salaried) women and people of colour working now than there were in 2005, which pushes the overall average down.

Landsburg illustrates it with a farmyard analogy:

Imagine a farmer with a few 100-pound goats and a bunch of 1000-pound cows. His median animal weighs 1000 pounds. A few years later, he’s acquired a whole lot more goats, all of which have grown to 200 pounds, while his cows have all grown to 2000. Now his median animal weighs 200 pounds.

A very silly person could point out to this farmer that his median animal seems to be a lot scrawnier these days. The farmer might well reply that both his goats and his cows seem to be doing just fine, at least relative to where they were.

This is almost an example of Simpson's Paradox, a well-known (to stats nerds) effect where the direction of a correlation disappears when that correlation is disaggregated. I was taught it with an example involving racial discrepancies in application of the death penalty:

Sixty per cent of white murderers are executed for their crimes, and fifty per cent of black murderers. Are black people discriminated against in the application of the death penalty?

Now suppose that we break down the murder victims by race as well. We find the common pattern that people tend to attack victims of their own race:

Number of murders where death penalty is applied

White Murderer Black Murderer
White Victim 50/70=71% 25/30=83%
Black Victim 10/30=33% 25/70=36%

What about now? Does it begin to look like black people are discriminated against? In this example, black people are more likely to be executed for the murder of black or white victims; but because the murder of black victims isn't taken as seriously by the courts, the fact that murderers predominantly attack people of their race makes it look like black people are less likely to be executed than white people.

The median income example isn't quite a case of Simpson's Paradox, because there is still a positive increase in wage whether or not the statistics are disaggregated. But it's still an example of a time when it is best to dig beneath the surface.

But there is more to be said on the story of wage stagnation. Because a second claim normally accompanies the belief that US wages have stagnated, and that is that there has been a "decoupling" of wages. Due to rising inequality, the median household wage hasn't risen as fast as the mean wage:

If we've seen that the median wage grows faster when disaggregated, then the solid red line is likely to take a steeper ascent. But what happens to the dashed red line when disaggregated?

Sadly, I cannot find the data required to answer the question. If anyone knows where to look, tell me, and maybe we can put the issue to rest.

An immigrant worker protests in Orlando, Florida. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Getty Images.
Show Hide image

Theresa May's Brexit stance could come at a political cost

The Prime Minister risks raising unrealistic expectations among Leave backers.

Good morning. For Leavers, there's only one more sleep before Christmas: tomorrow Tim Barrow will moonlight as a courier and hand-deliver Theresa May's letter triggering Article 50 to Donald Tusk and Britain's Brexit talks will start.

Well, sort of. That we're pulling the trigger in the middle of, among other things, the French elections means that the EU27 won't meet to discuss May's exit proposals for another month. (So that's one of 23 out of 24 gone!)

The time pressure of the Article 50 process - which, its author Colin Kerr tells Politico was designed with the expulsion of a newly-autocratic regime in mind rather than his native country - disadvantages the exiting nation at the best of times and if there is no clear winner in the German elections in October that will further eat into Britain's negotiating time.

That Nigel Farage has announced that if the Brexit deal doesn't work out he will simply move abroad may mean that Brexit is now a win-win scenario, but heavy tariffs and customs checks seem a heavy price to pay just to get shot of Farage.

What are the prospects for a good deal? As I've written before, May has kept her best card - Britain's status as a net contributor to the EU budget - in play, though the wholesale rejection of the European Court may cause avoidable headaches over aviation and other cross-border issues where, by definition, there must be pooling of sovereignty one way or another.

That speaks to what could yet prove to be May's biggest mistake: she's done a great job of reassuring the Conservative right that she is "one of them" as far as Brexit is concerned. But as polling for BritainThinks shows, that's come at a cost: expectations for our Brexit deal are sky high. More importantly, the average Brexit voter is at odds with the Brexit elite over immigration. David Davis has once again reiterated that immigration will occasionally rise after we leave the EU. A deal in which we pay for single market access, can strike our own trade deals but the numbers of people coming to Britain remain unchanged might work as far as the British economy is concerned. May might yet come to regret avoiding an honest conversation about what that entails with the British public.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.