One of the common memes among both the political Left and the political Right is that wages are being decoupled from productivity. Charts like this one from the Economic Policy Institute have been used by folks all over, from senators to pundits, from priests to politicians, to justify political policies such as minimum wage or re-distributive taxes on the rich and middle class.
But is this true? The answer is no. Take a look at that chart again, but this time look at the note on the bottom:
“Hourly compensation is of production/nonsupervisory workers in the private sector and productivity is for the total economy.”
So, what is going on here? The author of the graph is looking at the wages of one sub-segment and comparing it to the overall economy. Such a comparison is pretty meaningless. Since wages are tied to productivity, if all productivity gains are made in the public and/or supervisory and/or service sectors, then those wages would rise and not the private production/nonsupervisory side. In order for this chart to make sense, one would have to compare the wages of production/nonsupervisory to the same’s productivity.
So, what happens when we compare apples to apples?
“Oh yeah? Well, what about CEO wages?!”
Turns out that one is a myth, too. Many of these numbers (like the 331-to-1 ratio) are the result of another statistical sleight of hand. They are comparing the salaries of S&P 500 CEOs (which represent about 0.03% of all CEOs) to production/nonsupervisory workers (which represent about 75% of all wage earners). Again, when we look at an apples-to-apples comparison, we see that nope, all CEO wages are not outstripping average worker pay; in fact, it is rising at a lower rate, according to the BLS.
There’s an important lesson here: statistics can be used to say just about anything you want. One must remember to think critically about any claim, especially when the claimant stands to benefit from it, and ask the all-important question: “does this make sense?”