Income Inequality part 1

This meme has been making the internet rounds as a favorite of the left, especially progressives, as a sign of just how bad the income inequality is.  Naturally, the right claims the numbers are skewed, but without any numbers to support that position.  So, I decided to take a crack at some of the numbers and see what I could find.  Admittedly, some of these numbers are much harder to measure.  What defines a “typical worker?”  Which CEO’s were used to calculate the average CEO increase?  Other numbers are a bit easier to measure.  Minimum wage, college tuition, and average new home price are pretty easy to find and measure.  One of the first posts I saw stated that the numbers were based on 2013 figures.  So, that’s where I will measure.  Below are my results:

Minimum Wage

Minimum wage in 1978 - $2.65, minimum wage in 2013 - $7.25 (no change since 2009)
 Source: Department of Labor

Inflation adjusted 1978 equivalent in 2013 - $9.76

Source: Bureau of Labor Statistics CPI Inflation Calculator

Inflation adjusted change -> (9.76-7.25)/7.25*100 = 34.62% decrease

After a few different Google searches, I could not find any reporting that supported the 5.5% decrease shown in the meme.  The problem is, my math shows the decrease to be even worse than the 5.5% shown in the meme.  Regardless, I think we can all agree that an effective decrease in the minimum wage is bad for the economy.  

College Tuition

There are two different sets of data I’ve used for this, one from the National Center for Educational Statistics and one from collegeboard.org.  Let’s start with the NCES data: 

Total tuition, room, and board at public 4 year university 78-79 school year - $2145
Total tuition, room, and board at public 4 year university 05-06 school year - $12108

Change in tuition -> (12108-2145)/2145*100 = 464%. 

That’s not inflation adjusted and nowhere close to the 1120% the meme claims.  So what does it look like when we account for inflation?  Using 1978 dollars the tuition for the 05-06 school year should be $6412.42.  That results in a change of (12108-6412.42)/6412.42*100 = 88% increase.  If we use 2005 dollars and work back to 1978, an equivalent tuition would be $4050.21.  The resulting change is (4050.21-2145)/2145*100 = 88% increase.

Here’s the data from the college board:

Average 4-yr public university tuition & fees 1980-81 = $804
Average 4-yr public university tuition & fees 2016-17 = $9648
Average 4-yr public university tuition & fees 1980-81 (2016 dollars) = $2340
Change in 4-yr public university tuition & fees = (9648-804)/804*100 = 1100% increase

Okay, so now we are a bit closer to the 1120% increase the meme claims.  The problem is that doesn’t account for inflation.  Any proper measure of the change in tuition has to account for inflation, otherwise the figures are quite misleading.  Using the college board figures and adjusting for inflation the actual change is (2340-804)/804*100 = 191% increase.  The two sets of college figures arrive at different amounts of increase and some of that is due to the timeframes used and also the data sources.  The key thing to note, though, is that college costs are increasing dramatically.

Shelter

Data for this section comes from the Census Bureau.  In January 1978 the median new home price was $52,300 and the average new home price was $58,500.  In January 2013 it was $251,500 for the median and $306,900 for the average.  (See this for an explanation of the difference between median and average)  Just doing non-inflation adjusted calculations results in increases of 380% for the median new home price and 424% for the average new home price.  That median figure is right in line with the meme, so they get some props for that.  However, as I’ve said before, you have to adjust for inflation.  Using the BLS inflation calculator, the 2013 equivalent of the 1978 median home price is $192698.  That translates to a 30% increase in median home prices.  The 2013 equivalent of the 1978 average home price is $215542, meaning a 42% increase in the average home price.

What about the other claims made by the meme?  Here’s the EPI report that is the source for the claims regarding the exorbitant rise in CEO pay and the minimal rise in the pay of the typical worker.  And here’s the article from Huffington Post on the EPI report.  As for the medical costs, that number comes from a Bloomberg article (available only to Professional subscribers) that is nicely summarized by Huffington Post (the same article is also the source of 1120% rise in college tuition).

On the whole, the point of the meme remains.  Namely, expenses have gone up while incomes have not kept up except for the top of the chain.  The problem is that there are some figures missing from the meme that leave it open to claims of exaggeration/inaccuracy.  The expenses aren’t inflation adjusted while the incomes are, so that causes some skewing.  There are two ways they could have corrected this.  Either inflation adjust the expenses, as I’ve tried to do, or, include the cumulative inflation rate from 1978 to 2013.  In case you are wondering that rate is 257.3% per the US Inflation Calculator. 

Not adjusting for inflation would change the way the income figures are reported and change the way we need to look at those numbers.  The un-adjusted change in minimum wage was an increase of 173%.  However, when we compare that against an inflation rate of 257.3%, it means that the cost of consumer goods grew 0.67 times faster than the minimum wage.  It also shows that some of the biggest expenses we face – housing, education, healthcare – grew faster than the cost of consumer goods.  So, even if our incomes kept pace with inflation, some of our most expensive purchases have still become even more expensive.  There’s a lot more to say on the subject of income inequality and wealth distribution and this post is running long, so I will save more thoughts for future posts.