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RelativeWageChanges2011A

RelativeWageChanges2011A - Econ145. John Pencavel CHANGES...

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1 Congressional Budget Office, “Changes in the Distribution of Workers’ Annual Earnings Between 1979 and 2007", October 2009, http://www.cbo.gov/ftpdocs/105xx/doc10527/10-02- Workers.pdf . Econ145.RelativeWageChanges2011A John Pencavel CHANGES OVER TIME IN RELATIVE WAGES In the tables and figures that follow, be alert : precisely what earnings data are being presented? Apparent small differences in definitions often matter. 1. Are earnings measured relative to prices and, if so, which prices? 2. Do the earnings relate to the average (mean) worker or to the median or to some other point in the earnings distribution? 3.What is included in income? Non-wage benefits? Nonwage income (dividends, interest, rent)? Before or after income taxes? 4. Do the incomes relate to individuals or households or families or tax units? 5. Are the earnings measured per hour or per week or per month or per year? Are differences in length of work bound up in the earnings measure? To illustrate the relevance of the last point, consider data presented by the CBO from earnings statistics collected by the Social Security Administration. 1 Full-time full-year workers usually work at least 35 hours per week and 50-52 weeks per year. The data below describe workers aged 25 to 54 years with earnings defined as the sum of wages and salaries, tips and other forms of compensation but excluding self-employment income and deferred compensation.
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2 Percentage of Workers Classified as Employed Full-Time and for the Full Year at Selected Percentiles of the Earnings Distribution MEN WOMEN earnings at percentile ...... earnings at percentile ...... 10% 50% 90% 10% 50% 90% year 1979 40 87 94 4 67 87 1989 43 90 96 6 76 89 2000 65 93 96 15 81 87 2007 60 92 98 18 83 90 Average Annual Hours Worked among Workers Classified as Employed Full-Time and for the Full Year MEN WOMEN earnings at percentile ...... earnings at percentile ...... 10% 50% 90% 10% 50% 90% year 1979 2,270 2,260 2,380 2,410 2,080 2,160 1989 2,250 2,290 2,410 2,290 2,120 2,230 2000 2,180 2,310 2,460 2,100 2,140 2,280 2007 2,170 2,290 2,450 2,120 2,140 2,250 Estimates for workers at the 10th percentile are averages for workers whose earnings place them between the 8 th and 12 th percentiles. Estimates for workers at the 50 th and 90 th percentiles were also calculated in this way.
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3 CHANGES OVER TIME IN WAGES RELATIVE TO PRICES If we wanted to measure changes in real wages over time, we would divide a series on earnings by a price index. If we wanted to measure the change in real wage costs to the employer, the price deflator might be an index of the prices of the goods & services that labor helps to produce. If we wanted to measure the change in real wages as a component in the incomes of workers, the price deflator might be an index of the prices of goods & services that workers purchase in their consumption activities. Let 0 denote a base or reference year and t another year. Then an index number of real wages in year t is This compares at two moments the price of the worker’s labor market time, w , with an index of prices, p - either the prices of the outputs of firms or the prices of consumer goods Contemporary Information on Wages Information on w derives from
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