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I would love some help clearing up something I never quite understand: does that depend on whether it's corrected for purchasing power? How does this relate to

I would love some help clearing up something I never quite understand: does that depend on whether it's corrected for purchasing power? How does this relate to e.g. the idea that you have to work more hours on a minimum wage job to buy a house? So is it fair to e.g. express the price of a house in "burger flipping hours" instead of dollars, and see the price go up, implying that the poor do get poorer? Or is that already incorporated in the concept of "purchasing power", and are you now double correcting for something?

throwaway1777 7y ago
Purchasing power and inflation adjustment are usually accounted for properly. When people say “the poor get richer” they’re talking about the global poor, like folks who live on $2 per day. That number had drastically decreased. But in the western world the “poor” working for minimum wage and middle classes have seen almost no gains while the rich have seen massive increases in both income and wealth.
rayiner 7y ago
The most important thing to understand is that these time-series comparisons are much harder to analyze than they seem, because multiple variables are changing simultaneously. Consider, for example, the idea that you have to work more hours at minimum wage to afford to buy a house. Whether that's true or not, you also need to account for the fact that "minimum wage workers" make up a much smaller percentage of the population today than they did 30 years ago: https://www.bls.gov/opub/ted/2014/images/ted_20140403a.png https://www.bls.gov/opub/ted/2014/images/ted_20140403a.png In 1980, 15% of workers (and 20% of women) had earnings at-or-below the federal minimum wage. Today, it's about 5% for both men and women. So "minimum wage worker" identifies a much narrower, and likely less skilled, group of workers than it did in 1980. Also, who are those workers? Today, many are first generation immigrants. I think most people would agree that even in a fair economy, you would expect there to be some time lag during which new immigrants' incomes catch up to those of people with established roots in the U.S. (Even among immigrants who are college educated, for example, U.S. employers often don't give as much weight to degrees from unknown foreign schools.) In 1980, 6.2% of the population was immigrants: https://cis.org/sites/default/files/2018-09/camarota-imm-pop-sept-18-f1_0.jpg https://cis.org/sites/default/files/2018-09/camarota-imm-pop.... Today, about 14%. If you add economically-challenged people mostly to the bottom of the income distribution, obviously your median is going to go down. But when we think about these time series comparisons, we are usually thinking about the incomes of similarly situated people. If the percentage of the population that is immigrants is going up, you can have a situation where income seems to be going down, even though the incomes of people in each group (native born, immigrants) are both going up. Changes in financing and interest rates also change the equation. To a great extent, rising home prices have been offset by declining interest rates (in part thanks to things like mortgage-backed securities). From the perspective of the home buyer, what matters is the mortgage payment, not the precise division between purchase price and interest. Mortgage payments as a percentage of income are actually down significantly since the 1980s: https://cdnassets.hw.net/dims4/GG/a9ec223/2147483647/resize/876x%3E/quality/90/?url=https%3A%2F%2Fcdnassets.hw.net%2F55%2F9d%2Fc17b5b2b43d1ab7b8ffcc4d3eafb%2Fscreen-shot-2018-09-06-at-10.31.20%20AM.png https://cdnassets.hw.net/dims4/GG/a9ec223/2147483647/resize/.... Rents, meanwhile, are up, but not as much as you'd expect.

throwaway1777 7y ago

Purchasing power and inflation adjustment are usually accounted for properly. When people say “the poor get richer” they’re talking about the global poor, like folks who live on $2 per day. That number had drastically decreased. But in the western world the “poor” working for minimum wage and middle classes have seen almost no gains while the rich have seen massive increases in both income and wealth.

rayiner 7y ago

The most important thing to understand is that these time-series comparisons are much harder to analyze than they seem, because multiple variables are changing simultaneously. Consider, for example, the idea that you have to work more hours at minimum wage to afford to buy a house. Whether that's true or not, you also need to account for the fact that "minimum wage workers" make up a much smaller percentage of the population today than they did 30 years ago: https://www.bls.gov/opub/ted/2014/images/ted_20140403a.png https://www.bls.gov/opub/ted/2014/images/ted_20140403a.png In 1980, 15% of workers (and 20% of women) had earnings at-or-below the federal minimum wage. Today, it's about 5% for both men and women. So "minimum wage worker" identifies a much narrower, and likely less skilled, group of workers than it did in 1980. Also, who are those workers? Today, many are first generation immigrants. I think most people would agree that even in a fair economy, you would expect there to be some time lag during which new immigrants' incomes catch up to those of people with established roots in the U.S. (Even among immigrants who are college educated, for example, U.S. employers often don't give as much weight to degrees from unknown foreign schools.) In 1980, 6.2% of the population was immigrants: https://cis.org/sites/default/files/2018-09/camarota-imm-pop-sept-18-f1_0.jpg https://cis.org/sites/default/files/2018-09/camarota-imm-pop.... Today, about 14%. If you add economically-challenged people mostly to the bottom of the income distribution, obviously your median is going to go down. But when we think about these time series comparisons, we are usually thinking about the incomes of similarly situated people. If the percentage of the population that is immigrants is going up, you can have a situation where income seems to be going down, even though the incomes of people in each group (native born, immigrants) are both going up. Changes in financing and interest rates also change the equation. To a great extent, rising home prices have been offset by declining interest rates (in part thanks to things like mortgage-backed securities). From the perspective of the home buyer, what matters is the mortgage payment, not the precise division between purchase price and interest. Mortgage payments as a percentage of income are actually down significantly since the 1980s: https://cdnassets.hw.net/dims4/GG/a9ec223/2147483647/resize/876x%3E/quality/90/?url=https%3A%2F%2Fcdnassets.hw.net%2F55%2F9d%2Fc17b5b2b43d1ab7b8ffcc4d3eafb%2Fscreen-shot-2018-09-06-at-10.31.20%20AM.png https://cdnassets.hw.net/dims4/GG/a9ec223/2147483647/resize/.... Rents, meanwhile, are up, but not as much as you'd expect.