Waging War: Media Ignore Compensation Increase

     One month away from the election, the media are right in line with the Democratic talking point of “stagnant wages.”

     “We are in a period of stagnant wages for workers in this country,” said CNN’s Lou Dobbs on a September 15 CBS “Early Show” appearance.

     “Even with high gas prices and stagnant wages, parents are spending more,” declared NBC’s Dawn Fratangelo on the August 26 “Nightly News.”

     The October 9 cover of U.S. News & World Report also blared: “Can the Economy Save Bush? Falling gas prices help, but stagnant wages and rising debt mean trouble in November.”

     The U.S. News article even admitted that it was passing along the Democratic argument.

     “The Democrats, of course, aren’t convinced about the economy,” wrote the magazine’s senior writer James Pethokoukis. “They’ve got their own message, focused on uncertainty, anxiety, and stagnation.”

     But lost in all the wage numbers, in all the reports from various government agencies, is a vital component of workers’ pay: benefits.

Compensation Rising …

     The Bureau of Labor Statistics (BLS) announced in a September 6 report that hourly compensation in non-farm businesses went up 6.6 percent from the first quarter to the second quarter of 2006. It was also a 7.7-percent increase from the same time last year.

     According to the BLS, “hourly compensation includes wages and salaries, supplements, employer contributions to employee benefit plans, and taxes.”

     Those aren’t numbers the media have focused on, despite the huge increases in health care and other benefits paid for by employers. In fact, “total compensation has risen, which is still true after you take out health benefits,” said James Sherk, a macroeconomic policy analyst with The Heritage Foundation, who is working on a report about compensation and standards of living to be released soon.

     Most employees still pay merely a fraction of their health care costs, thanks to employer-provided benefits that are part of the total compensation package. As The New York Times noted in a September 27 article, “about 6 out of 10 employers still offer health coverage to attract and retain workers. But the growth in premiums is making it harder and harder for companies to raise wages and salaries.” According to a 2006 Kaiser Family Foundation study, workers are paying about 16 percent of the cost of single health care and 27 percent for family care.

… While Wages Lagging Behind Productivity

     The media have chosen to highlight negative numbers, obscuring the gains in workers’ overall compensation. A popular comparison is workers’ wages with business productivity, as Barron’s Weekly Senior Editor Michael Santoli made on the October 4 “Good Morning America.”

     “Corporate profits are at record levels right now, and productivity – meaning they are doing more with less, fewer people – is at record levels,” Santoli said. “And yet, incomes, in other words, take-home pay has not really kept pace with corporate profits, with the stock market, with actually all the aggregate numbers that tell us that the economy is growing nicely. So there is a perceptual gap here, between what the average person perceives their well being to be, and what the economic numbers seem to say.”

     That “perceptual gap” could result from media comments like ABC anchor Robin Roberts’ response: “It’s just harder to keep a roof over your head these days. I mean that disposable income is just so, it’s so difficult.”

     NBC’s Matt Lauer made a similar argument on the August 31 “Today” show. “One new report shows that wages have actually declined even though productivity is going up. And all this means less money in your pocket,” he said.  

     Once again, the media’s short memory for history is handicapping the coverage. The cycle of growth is normal, said Allan Hubbard, director of the National Economic Council, and Edward Lazear, chairman of the President’s Council of Economic Advisers, in an October 2 column for The Wall Street Journal.

     “A pattern that prevails as the economy moves from recession to recovery, and then into a sustained expansion, is that productivity grows first,” Hubbard and Lazear wrote. And wages are starting to catch up, they added.

     “The issue here is energy prices, not wage growth,” they wrote. “Workers’ paychecks are going up, but they have had to use much of that increase for energy purchases like gasoline. The recent news on energy prices is good for workers.”

     Most inflation adjustments use the Consumer Price Index (CPI) to show the real changes in wages. That’s where the energy prices come in, as Hubbard and Lazear pointed out. But that popular adjustment has its flaws, Heritage’s Sherk said. He said to analyze production, it’s better to measure the goods workers are producing rather than consuming.  

     “This allows an apples-to-apples comparison” of whether companies are passing along their productivity gains to workers, Sherk explained. “If you used a consumption-based measure of inflation, like the CPI, you would pick up changes in prices that have nothing to do with how productive American workers are.”

     Instead, Sherk adjusted the BLS’s compensation data based on the prices of goods workers produce rather than consume. That adjustment showed a real 3.1-percent increase in compensation from last quarter and a year-over-year increase of 4.3 percent.  

Stay tuned for an upcoming BMI report on media coverage of the economy – a yearlong look at how the media have distorted good economic news. Sign up for The Balance Sheet, our free weekly newsletter, to be certain you won’t miss it!