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Just gonna rip this straight from an /r/Economics comment yesterday: >Using wages as a picture welfare is unproductively restrictive. Using total compensation

by rory096 11y ago

Just gonna rip this straight from an /r/Economics comment yesterday: >Using wages as a picture welfare is unproductively restrictive. Using total compensation yields a very different picture.(http://i.imgur.com/nCCCuSC.png http://i.imgur.com/nCCCuSC.png) Real compensation accounts for all forms of income paid to employees, including health care costs and defined contribution plans. Additionally, the CPI overstates inflation, and changing household dynamics/other forms of income (https://www.minneapolisfed.org/publications/the-region/where-has-all-the-income-gone https://www.minneapolisfed.org/publications/the-region/where...) have substantive implications for any picture of overall income growth. Context matters for how we should view these trends.(http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_dbvXvc4ED41vtv7 http://www.igmchicago.org/igm-economic-experts-panel/poll-re...) https://www.reddit.com/r/Economics/comments/3by8tb/elizabeth_warren_the_average_family_in_the_bottom/csqnpop https://www.reddit.com/r/Economics/comments/3by8tb/elizabeth...

TheOtherHobbes 11y ago
Unfortunately that's clearly sophistry. The money is being spent involuntarily, for benefits the recipients has no control over, with little or no market leverage, priced in ways that aren't genuinely open to competition. It shouldn't take much thought to realise that's exactly how taxation works. So effectively that argument simply treats benefits that would be funded from taxation in more rationally managed countries as somehow magically equivalent to private income. Clearly, that's not even good sophistry - although it's about par for the course for a modern orthodox economic argument, so I suppose no one is going to be surprised by the low quality.
- refurb 11y ago
  Those benefits aren't funded from taxation, they are funded by your employer. And they most certainly count as compensation. If your employer promised you a full pension, wouldn't you consider that a part of compensation?
  - nmrm2 11y ago
    Parent's argument was that it's disingenuous to count e.g. health insurance as part of compensation when it's required by the State. That's not private compensation, it's a tax on corporations. Post-ACA, a company calling health insurance part of your compensation package is like them calling payroll tax part of your compensation. Which almost no one does historically, because that's stupid. It's not reasonable to argue that "real compensation" has increased between year X and year Y by counting tax burdens in year Y but not in year X. The reason that such a comparison is stupid and wrong should be obvious. It's slightly more reasonable to argue that additional taxes have eaten up projected wage increases. (But that argument is wrong.) > If your employer promised you a full pension, wouldn't you consider that a part of compensation? The difference here is that the Government more or less never requires a private company to provide a full pension.
    - JesperRavn 11y ago
      So if the government taxed each corporation $1000 per employee, then gave you that $1000 back at the end of the year, that would mean your wages were less by $1000 a year? it's not reasonable to argue that "real compensation" has increased between year X and year Y by counting tax burdens in year Y but not in year X. It is when the government introduces new "taxes" in year Y, which would have been equivalent to salary in year X.
      - nmrm2 11y ago
        > It is when the government introduces new "taxes" in year Y, which would have been equivalent to salary in year X. This is a different argument and I've already addressed it in my post above: It's slightly more reasonable to argue that additional taxes have eaten up projected wage increases. (But that argument is wrong.) Again, the argument you are making is that taxes offset increases in income that would have increased otherwise, NOT that income has actually increased. But, as I stated above, this argument is clearly and obviously wrong -- a conclusion that is unambiguously supported by the data. Tax increases cannot explain a multi-decade stagnation in income, ESPECIALLY because NET corporate taxes have net decreased in that period of time [1]. (As a complete aside, when every corporate tax break is passed on to either the customer or the employee, I'll be ready to entertain even the criteria I established above. But while companies pocket the difference and perform stock buy backs [2], economists who argue tax increases count as increases in income are being disingenuous (edit: changed wording). [1] https://en.wikipedia.org/wiki/Corporate_tax_in_the_United_States#/media/File:US_Effective_Corporate_Tax_Rate_1947-2011_v2.jpg https://en.wikipedia.org/wiki/Corporate_tax_in_the_United_St... [2] Clinton mentioned that H.W. Bush warned him not to provide a no-strings-attached tax holiday for this exact reason; see his latest interview on the Daily Show.
- SilasX 11y ago
  >, with little or no market leverage, priced in ways that aren't genuinely open to competition. Exactly. It's not very reassuring to tell me my total compensation includes $8000 "worth" of insurance that turns out to cover very little in the event of a catastrophe.
badsock 11y ago
If you chart the first link against productivity and GDP, I don't think it supports his argument at all: https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1o51 https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=... They were tied together until the 1970s, and then they began to diverge. The economic success of the country has been reflected less and less in the total compensation of the average worker since then.
- rory096 11y ago
  Well sure it does, when you set 1973 Q4 as index on all three... Here's centered at 1950: https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1o5D https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=... Here's 2009: https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1o5E https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=...
  - badsock 11y ago
    Holy crap, sorry, that was totally unintentional. You're absolutely correct - it lends a huge visual bias. That being said, if you look at the slope of the lines in all three views, it's still easy to see that they diverge. In the 1950s one, you can tell that the GDP takes off in the 80s without bringing compensation with it, and the productivity does the same in the mid-70s. This is directly contrary to the whole "rising tide raises all boats" arguments from that era.

by rory096 11y ago

TheOtherHobbes 11y ago

Unfortunately that's clearly sophistry. The money is being spent involuntarily, for benefits the recipients has no control over, with little or no market leverage, priced in ways that aren't genuinely open to competition. It shouldn't take much thought to realise that's exactly how taxation works. So effectively that argument simply treats benefits that would be funded from taxation in more rationally managed countries as somehow magically equivalent to private income. Clearly, that's not even good sophistry - although it's about par for the course for a modern orthodox economic argument, so I suppose no one is going to be surprised by the low quality.

refurb 11y ago
Those benefits aren't funded from taxation, they are funded by your employer. And they most certainly count as compensation. If your employer promised you a full pension, wouldn't you consider that a part of compensation?
- nmrm2 11y ago
  Parent's argument was that it's disingenuous to count e.g. health insurance as part of compensation when it's required by the State. That's not private compensation, it's a tax on corporations. Post-ACA, a company calling health insurance part of your compensation package is like them calling payroll tax part of your compensation. Which almost no one does historically, because that's stupid. It's not reasonable to argue that "real compensation" has increased between year X and year Y by counting tax burdens in year Y but not in year X. The reason that such a comparison is stupid and wrong should be obvious. It's slightly more reasonable to argue that additional taxes have eaten up projected wage increases. (But that argument is wrong.) > If your employer promised you a full pension, wouldn't you consider that a part of compensation? The difference here is that the Government more or less never requires a private company to provide a full pension.
  - JesperRavn 11y ago
    So if the government taxed each corporation $1000 per employee, then gave you that $1000 back at the end of the year, that would mean your wages were less by $1000 a year? it's not reasonable to argue that "real compensation" has increased between year X and year Y by counting tax burdens in year Y but not in year X. It is when the government introduces new "taxes" in year Y, which would have been equivalent to salary in year X.
    - nmrm2 11y ago
      > It is when the government introduces new "taxes" in year Y, which would have been equivalent to salary in year X. This is a different argument and I've already addressed it in my post above: It's slightly more reasonable to argue that additional taxes have eaten up projected wage increases. (But that argument is wrong.) Again, the argument you are making is that taxes offset increases in income that would have increased otherwise, NOT that income has actually increased. But, as I stated above, this argument is clearly and obviously wrong -- a conclusion that is unambiguously supported by the data. Tax increases cannot explain a multi-decade stagnation in income, ESPECIALLY because NET corporate taxes have net decreased in that period of time [1]. (As a complete aside, when every corporate tax break is passed on to either the customer or the employee, I'll be ready to entertain even the criteria I established above. But while companies pocket the difference and perform stock buy backs [2], economists who argue tax increases count as increases in income are being disingenuous (edit: changed wording). [1] https://en.wikipedia.org/wiki/Corporate_tax_in_the_United_States#/media/File:US_Effective_Corporate_Tax_Rate_1947-2011_v2.jpg https://en.wikipedia.org/wiki/Corporate_tax_in_the_United_St... [2] Clinton mentioned that H.W. Bush warned him not to provide a no-strings-attached tax holiday for this exact reason; see his latest interview on the Daily Show.
SilasX 11y ago
>, with little or no market leverage, priced in ways that aren't genuinely open to competition. Exactly. It's not very reassuring to tell me my total compensation includes $8000 "worth" of insurance that turns out to cover very little in the event of a catastrophe.

badsock 11y ago

If you chart the first link against productivity and GDP, I don't think it supports his argument at all: https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1o51 https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=... They were tied together until the 1970s, and then they began to diverge. The economic success of the country has been reflected less and less in the total compensation of the average worker since then.

rory096 11y ago
Well sure it does, when you set 1973 Q4 as index on all three... Here's centered at 1950: https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1o5D https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=... Here's 2009: https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1o5E https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=...
- badsock 11y ago
  Holy crap, sorry, that was totally unintentional. You're absolutely correct - it lends a huge visual bias. That being said, if you look at the slope of the lines in all three views, it's still easy to see that they diverge. In the 1950s one, you can tell that the GDP takes off in the 80s without bringing compensation with it, and the productivity does the same in the mid-70s. This is directly contrary to the whole "rising tide raises all boats" arguments from that era.