Courtesy of The Other 98%, with over 17,000 likes and 50,000 shares. This meme compares various cost of living increases since 1978 with the corresponding changes in wages. According to the meme, important staples have increased by four to elevenfold, while wages of workers have stagnated, and CEO’s have exploded. While there is some truth to these numbers, this meme largely overstates the case, and misleads its viewers by deceptively comparing nominal vs. real prices, among other errors.
Nominal vs. Real Prices
When comparing prices in 2017 to 1978, there’s been almost 40 years of inflation that has eroded the dollar’s value, and these effects are quite substantial. Using the inflation calculator from the BLS, we find that $1 in 1978 would equal $3.93 today, almost a fourfold increase. This means it’s important to keep in mind real (inflation adjusted) prices vs nominal (not adjusted) prices. The meme mentions neither, but under examination it quickly becomes apparent that they erroneously use both to suit their needs. Since it makes the most sense to use real prices, we’ll stick to those in our analysis.
The National Center for Education Statistics publishes a historical chart of college expenses. In 1978, the average tuition and fees for an undergraduate institution was $1,073. The latest data available only goes through the 2015-16 school year, so we’ll use that as our benchmark for current prices. Inflation adjusted, the 1978 tuition would be $3,731. In the 2015-16 school year, the average tuition and fees were $11,865. This is a real increase of 318%, nowhere near the 1120% in the meme (which appears to be based on comparing nominal rates).
If we compare tuition plus room and board, the difference is even less; $8,998 in inflation adjusted dollars vs. $22,432 today, or a real increase of 249%. This is still a substantial increase and burden for college students, but the question should be asked, why college has gotten so much more expensive?
In answering that it would be impossible to ignore the role of federal aid in college education. In 2016, $125.7 billion was spent federally on student financial aid, increasing the entire loan portfolio to over $1 trillion. In 1980, just $12.7 billion was spent on all federal and state student aid programs. Inflation adjusted that would be about $39 billion, meaning federal spending has increased over 300%, roughly in line with the price increases.
This is a difficult claim to check, as it’s unclear what this meme refers to. Does “medical care” mean average health insurance costs, total health expenditures, cost of care, something else? We’ll examine the most basic measure, average healthcare cost per person. According to the Centers for Medicare and Medicaid Services, healthcare costs amounted to $9,990 per person in 2015 (the latest data available). In 1978, the average cost was $863 per person, (equal to $3,266 at the end of 2015), meaning real costs rose 378%, again far less than the 601% in the meme.
As with college tuition, this is still a significant increase and burden consumers bear, but again if we look to reasons for such a rapid increase, we find similar increases in government spending. In 1978, $78.1 billion ($295.6 billion in 2015 dollars) was spent on all government healthcare programs. In 2015, Medicare and Medicaid alone spent $1.19 trillion, a real increase of over 400%! Correlation doesn’t equal causation, but it seems suspicious that two federal programs that increased spending dramatically saw similar increases to consumers in those markets. It’s also not a narrative this meme would likely want to blame.
According to Zillow, the median home price in America is currently $200,700. In 1978, the median price was about $50,000 ($196,000 inflation adjusted). That’s only a 2% increase in real terms. As for rents, the current median reported by Zillow is $1,600/month, while the Census Bureau reported $481 in 1980 ($1,517 inflation adjusted). That’s a real increase of about 5%. Both are far lower than the 380% reported in the meme, although certain cities and locales might have higher increases. In addition, it should be noted that the average home today is 1,000 square feet larger than in 1973, and the average living space per person has doubled, so we’re comparing bigger and better houses. With that perspective, housing prices have actually come down in real terms.
Now that we’ve seen the various cost of living increases, how do wage increases stack up? As with the prior vagueness of “medical care”, it’s hard to determine what this meme means by a “typical worker”. Assuming this means low-middle level or manufacturing employees, the Federal Reserve’s average hourly earnings of production and non-supervisory employees is good metric. They report an average wage of $5.93/hr in August 1978 ($22.06/hr inflation adjusted). As of August 2017, the average hourly earnings were $22.12, for a real increase of less than 1%. In this case, the meme seems to understate its case.
However, another useful metric is the Fed’s chart of real median household income (which only goes back to 1984). It shows a real increase of 19% over that time frame, which is more than this meme states. Perhaps, a “typical worker” lies somewhere in the middle, and the 10% increase quoted by this meme seems fairly reasonable in this case.
As for the minimum wage, it was $2.65/hr in 1978, or $9.61 in today’s dollars. Currently, the federal minimum wage is $7.25/hr, which means a reduction of 32% in real terms. Again, the meme seems to understate its case here. However, there is a significant caveat, as most states have higher minimum wages than the federal rate, and many large cities have higher rates than their states. In fact, 29 states and Washington D.C. all have higher minimum wages than the federal rate, and many large states and cities have rates above the inflation adjusted minimum wage of 1978. Additionally, the percentage of workers earning the minimum wage has dropped considerably. Less than 4% of hourly workers currently earn the minimum wage, compared to over 13% in 1979. This would more than erase the supposed 5.5% decrease.
The meme gets its 937% increase from this study done by the Economic Policy Institute, which is a pro-labor research group co-founded by Robert Reich. This study only includes CEO’s from the top 350 companies, not all CEO’s, and claims the average CEO pay was $15.2 million in 2013.
However, this is quite misleading, as there are much more than 350 CEO’s in the country. If we look at the BLS report for chief executive employment, there are 223,260 CEO’s as of 2016, meaning the EPI study includes less than 2/1000 CEO’s in their study! The BLS reports an average CEO wage of $194,350, which is quite a ways off from $15.2 million. The EPI does address this critique here, but it’s not really convincing, and they seem to be defining “CEO” in a non-objective way to fit their narrative. This is enhanced by the fact that large firms have grown exponentially since the 1970s as the global economy exploded with countries like China adding billions of customers to the global marketplace.
The BLS doesn’t publish chief executive pay going back to 1978, and considering the EPI study is so far off base with any reasonable definition of “average CEO”, no reliable statistic can be given here on CEO pay. However, if the average CEO pay today is $194,350, the corresponding wage in 1978 would be $49,452. If we’re to believe that is a 937% increase, the average CEO pay in 1978 would be just $5,277. Clearly, that’s way off, and this data point should be ignored.
This meme misleads its viewers by showing certain price changes that aren’t adjusted for inflation with others that are. This significantly affects the percentages, which they fail to explain, and is a dishonest tactic. Additionally, their use of “CEO pay” is based on a study that is dubious and defines “average CEO” in a way that isn’t objective, and fits into their narrative. It also neglects to show other goods and services that have decreased in price (like electronics, airline tickets, numerous technological advancements making life more affordable, etc.). Even still, the meme is at least partially correct in highlighting that real prices have gone up substantially some areas. However, the reason for those price increases are up for debate, and might not fit into this meme’s narrative.