Revisiting the Impact of Globalization on Wages: Beyond Household Income

In recent years, the concept of globalization has been widely debated in relation to wage stagnation. However, the narrative often fails to account for the complexities within household dynamics and the evolution of individual economic realities. This article aims to provide a comprehensive analysis by dispelling common misconceptions and highlighting the true picture of wage growth.

Understanding Household Income

One of the primary reasons why reports of wage stagnation persist is their reliance on household income instead of individual wages. As the number of individuals within the average American household has been decreasing, this measure can be misleading. For instance, a household consisting of two workers, each earning $20,000 annually, would report an income of $40,000. If both receive a $10,000 raise, they can afford to live separately, increasing their combined income to $60,000. However, their household income would drop to $30,000, giving a false impression of wage stagnation.

The Impact of Excluded Benefits

Another factor contributing to the perception of wage stagnation is the exclusion of non-salary benefits such as health insurance and 401k contributions. When these benefits are factored in, the picture of economic growth becomes clearer. According to a report by the Bureau of Labor Statistics, real wages have increased by over 50% since the 1970s. This growth is substantial and far from stagnant.

Individual vs. Group Income Statistics

Reports of wage stagnation often compare income at the group level rather than the individual level. This method overlooks the dynamic nature of personal and household income changes. Studies following the same individuals over time paint a different and more accurate picture. For example, a study by the Federal Reserve found that while income groups may show little progress, individuals within these groups often experience stark changes. The study followed thousands of individuals who were 35-40 years old in 1987 and tracked their incomes over the next two decades. The results showed significant variations within these individuals, reflecting the fluid nature of economic realities.

Poverty and Immigration

The issue of poverty and immigration further complicates the narrative. It is important to recognize that while there is a significant influx of immigrants with limited resources, most of these individuals eventually move away from poverty. Statistical studies have shown that those who cross the border today are more likely to eventually join the higher-income groups, rather than remain in the lower brackets. This is why poverty rates among immigrants are falling over time. For example, the poor as a group will continue to show little progress, but the individual within these groups will likely rise out of poverty.

Income Distribution and Household Statistics

Statistics based on household income can also overstate the difference between the rich and the poor. According to Thomas Sowell's 2012 book, Intellectuals and Society, there are 39 million people living in the bottom 20 of households and 64 million in the top 20. This means there are far more wage earners in the top 20% of households than in the bottom 20%. This misrepresentation highlights the importance of individual income analysis in understanding wage dynamics.

Conclusion

In conclusion, the narrative of wage stagnation due to globalization is complex and often misleading. By focusing on household income, excluding benefits, and comparing income groups instead of individuals, the actual progress in wages is often underappreciated. Further research and reporting that focus on individual earnings will provide a more accurate and holistic view of wage growth in the context of globalization.

References

1. Federal Reserve - The Long-Run Distribution of Household Income and Wealth: 1918-2013 2. Bureau of Labor Statistics - Real Average Weekly Earnings