Celebrate the highest median earnings in American history (unless your money comes from owning rather than from working.)

The BLS released data Thursday showing that real median full-time workers reached all-time high earnings last year: $347/week. This is cause for celebration, but realistically, it is only 3.5% higher than it was in the 1970s so it is pretty dismal in the big picture. The average American worker has gotten a raise that would not even be terribly exciting in a single year, much less spread out over 37 years!

Whereas median full-time wages rose 3.5% during this period, real mean GDP rose 78% which means that somebody’s income rose by more than 78%. Guess who that was? It was mostly people who earn above the median income, but also there was a tiny increase in the percent of the population that is working full time from about 35% to about 38%.

Median earnings of full-time workers is a useful statistic, and I see no reason to question the data showing an all-time high right now, but the big problem with this data is that most Americans don’t work at all for pay and it neglects to measure anything about them. When unemployment rises, median earnings tends to rise which seems perverse.  This is because wages are sticky and low-wage workers are much more likely to get laid off than high-wage workers.  For example, during 2008 the median full-time earnings spiked upwards to the previous all-time high mainly because unemployment spiked to one of its all-time highs. Today we are in a completely different situation because unemployment is low, so this time the high wage really does represent a labor market that is increasing average prosperity, but you do need to think about other measures like unemployment when interpreting this graph.

Whereas workers will celebrate this rise in our average income, our corporate leadership thinks that higher wages are a bad because they don’t like rising labor costs. Most of the Fed leadership has tended to agree that it is a bad thing because they are in social circles that are closer to corporate executives than to the median American. The Fed tends to complain that this is a sign of inflation and it raises the likelihood that they will raise interest rates at their next meeting. That would tend to push wages back down and decrease hiring. Since the 1970s, the Fed has tended to raise interest rates (which increase the safe return to capital) whenever the wages of labor start rising which keeps wages from rising. Perhaps this is one reason inequality has been rising. The income of capital has risen relative to the income of labor and capital is mostly owned by the wealthy.