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Terry J. Fitzgerald in the Minneapolis Fed Review:


Fringe benefits have become an increasingly important part of employee compensation over the past 30 years. The BLS estimates that benefits currently account for about 30 percent of employer costs for employee compensation. While the BLS does not provide similar estimates for 1975, other sources suggest that the benefit share of total compensation has risen substantially. For example, the Economic Benefits Research Institute estimates that health care as a share of total compensation rose from 3.3 percent in 1975 to 8.5 percent in 2005.

...Rather than falling by 4 percent over the past 30 years, average hourly earnings have actually risen by 16 percent.


Doesn't that last sentence single-handedly refute Paul Krugman's latest book? Thanks to Tyler Cowen for the pointer.

Ecologist Ken Caldeira:


If we could pour a five-gallon bucket’s worth of sulfate particles per second into the stratosphere, it might be enough to keep the earth from warming for 50 years. Tossing twice as much up there could protect us into the next century.

Thanks to Greg Mankiw for the pointer. What I would like to know is whether geo-engineering represents a just-in-case technology. That is, if we can execute an Operation Sunscreen that quickly stops temperatures from rising, that would make for a really strong case against sacrificing a lot of GDP through a carbon tax. Because we do not yet know how bad global warming is going to be, the longer we can wait before doing anything about it, the better--but only if we know that we can wait and still do something about it!

Tyler Cowen ruminates,

Recall that 78 percent of the buyers in this market [college education] choose the public sector. Tuition is going up because it can, to paraphrase the old saw about the dog (or is it the monkey?). But too big a sticker shock across one year would irritate voters, who might then insist on tighter regulations on public sector higher education. Think about the equilibrium. Many state schools could earn more money by forgoing state aid and raising tuition to profit-maximizing levels, or some approximation thereof. Step-by-step, we are moving toward some version of this outcome.

Why do low-tuition goodies for middle class parents no longer figure so prominently in the political calculus? Could it be the aging of the population? Or simply that some schools tried raising tuition and found that it did not backfire?


It strikes me that we use the same formula to raise prices in both health care and education. (a) Subsidize demand; (b) Restrict supply using accreditation rules.

Tyler's question is why prices rise gradually rather than simply reach a high level and stay there. I think what goes on is a gradual cycle whereby the demand subsidy goes up, then the price goes up, which leads politicians to increase the demand subsidy, etc. The process plays out over time, not all at once.



COMMENTS (9 to date)
spencer writes:

I started to look at the Fed article you referenced.

The first thing I saw was them comparing average hourly wages to total labor income.

Why should I pay any attention to an article that starts out by trying to misleading their readers by comparing an average to an aggregate series?

As soon as I saw that I concluded the article was so biased that I should not wast my time on it.

Do you care to show me why I am wrong?

John Thacker writes:

Do you care to show me why I am wrong?

Spencer, you looked only at the graphs and failed to read even the paragraph below the graphs. I think you were too quick to dismiss the article-- it explicitly says that the two numbers are not comparable.

From the article:

In short, Figures 1 and 2 compare wage rates that are not really comparable-an apples-to-oranges comparison, if you will. The following analysis makes a few simple adjustments to the wage series that allow for a more informative apples-to-apples comparison of the data.

So the entire article is pointing out the differences in many commonly used measurements and trying to figure out a good way to compare them.

John Thacker writes:

The first thing I saw was them comparing average hourly wages to total labor income.

No you didn't, Spencer. The graphs compare: median hourly wage, average hourly earnings, and the national aggregate labor income per hour, not the total labor income. The information given in Figure 2 is an average, and would be comparable if not for severe measurement issues.

wintercow20 writes:

Spencer, the point of the article was to get to an apples-to-apples comparison of data to explain the seeming contradiction between macroeconomic indicators of well being (e.g. national income per hour) and microeconomic indicators of well being (average hourly wages and median hourly earnings). The article seemed to be pretty simple and straightforward. I could see you quibbling with the use of the PCE as the common price deflator across the series, but if he were to use a different series, the focus of the paper might then be as to why things around us appear to be so good, but that it is not even showing up in the macro-data.

Bob writes:

Dr. Mankiw mentioned his concern about unforeseen consequences to seeding the stratosphere with sulfate particles, but unfortunately no longer accepts comments on his blog.

The first thing to come to my mind when reading that proposal was last decade's environmental scare: acid rain. Sulfates (and nitrates) are the main sources according to the wikipedia article [1]. These components need water to react with, of which the stratosphere is approximately only 1% [2], but I have no knowledge of how localized dopants like these tend to stay.

This is also the concern of an electrochemist commenting on atmospheric chemistry. I could be way out of my element (no pun intended).

[1]- http://en.wikipedia.org/wiki/Acid_rain
[2]- http://www.sron.nl/index.php?option=com_content&task=view&id=1177&Itemid=1150

Rod writes:
but only if we know that we can wait and still do something about it!

Well, we should also not take action unless we're reasonably confident that the action will do more good than harm. There would be no small level of irony if we attacked "warming" and found out that the new-ice-age-crowd from the 70s was right all along.

spencer writes:

I went back and read the article and realize I overreacted.

I was wrong and apologize for making such an error.

pgl writes:

Non-economist but very well informed Kevin Drum has a must see post. OK, the gals have seen their real compensation rise but not the fellows. And someone was saying Krugman's book has been refuted?

agent00yak writes:

As Wintercow said, it seems as if Fitzgerald assumes away the lack of growth by choosing to normalize the time series to the PCE deflator instead of CPI-W. I don't disagree that the PCE deflator or CPI-U/RS are more consistent time series. I've used the CPI-U/RS on occasion myself because I am dismayed by how much the CPI methodology has changed over time.

However, to pretend that this article is proving that there has been a lot of hourly wage growth is slightly disingenuous.

On the other hand, if "everyone" already agrees that the CPI is a much poorer reflection of economic reality than the PCE deflator then I withdraw the above statement.

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