Lying with statistics

I can see that we\’re about to get hit with some very dodgy statistics by the Resolution Foundation.

The British middle class is in danger of suffering prolonged American-style wage stagnation as a result of widening income inequality and a weak jobs market for skilled employment, a top US economist says .

On the eve of an economic summit on the plight of the \”squeezed middle\” that takes place in London on Monday, the warning is issued by Jared Bernstein, former chief economist and economic adviser to US vice-president Joe Biden.

Being economic advisor to Joe is similar to being a low grade SpAd in our system: Will Straw say.

But the numbers they\’re bandying about, it\’s important to realise that the US numbers all come with important caveats.

The summit will highlight how the incomes of middle-class, working-age households in the US fell marginally from $56,000 a year in 1989 to $55,200 in 2010.

For example, this.  The US measures only market incomes in this measure. It is not even measuring market compensation, only market incomes.

It also does not adjust for changes in the size of household. Something which has been reasonably important over this period of time. Even a static household income becomes a rise in household income per member of household.

There\’s also this point that they themselves make:

Evidence suggests the poor US performance may in part be due to specifically American factors, including soaring health insurance premiums that have eaten up more of workers\’ pay packets, putting downward pressure on wages.

No, I\’m not about to say that the US method is the right or best method of financing health care. Rather I want to point to the effects on these statistics. By measuring market income, not market compensation, the effects of the rise in health care costs are excluded from the numbers. We\’re seeing only what the workers get after health care is paid for (or rather, after the portion that employers pay for). And given health care cost inflation over the period that\’s quite a large difference.

Here in the UK we pay for health care through the tax system. So what we pay for health care is included in our market incomes (yes, we are measuring pre-tax market incomes). So, that doubling of NHS spending (roughly) from 5% to 10% of GDP, all of which comes out of taxes, does not impact upon the UK figures in the same way that it impacts upon the US ones. However, we\’re all still paying for a doubling of the spend on health care, as health care spending has in fact doubled in both countries over the period. We\’re just seeing it differently in the numbers because of the way the numbers are complied. In the US it comes as a compression of pre-tax market incomes. In the UK it comes as a compression of after tax market incomes.

And, yes, there\’s another wrinkle here as well, social security taxes. Because we\’re talking pre-tax figures the amount that employees pay out of their pay cheques for their pension and Medicaid, the changes in it, doesn\’t change our headline figure. However, the change in what employers pay in the same taxes does impact upon the headline incomes/wages we\’re using here. For it\’s a general agreement that from some to most (in fact, many would say all) of employers\’ social security is really paid by the workers in the form of lower headline wages.

And yes, this has changed as well. Not a huge amount a percentage point or two depending on where you start but it is a difference.

And then we\’ve got this:

Bernstein and Kelly say that UK leaders should beware of repeating the mistakes of US politicians and avoid excessive deregulation or tampering with the minimum wage. In addition, they suggest tax and benefit policy should support low – and middle-income families rather than the affluent.

Which is complete fucking nonsense of course. Given that they\’re using pre-tax and pre-benefit market incomes to make their calculations changing the tax and benefit systems to favour their desired section of the population makes absolutely no damn difference to the numbers they are using. You\’d still have exactly the same numbers whatever the tax and benefit systems did: because you\’re not taking account of the tax and benefit systems, see?

OK, so some of the above can be seen as quibbling: other parts of it make more difference to the numbers under discussion. But just to lay the groundwork for whatever nonsense the Resolution Foundation does decide to grace us with.

If you want to talk about post-tax and post-benefit incomes then you\’d better start with post-tax and post-benefit incomes. You want to talk about the distribution of market incomes unadjusted, that\’s just fine. But if you start using pure market income stagnation as a reason for tax and benefit changes then you\’re a lying cunt: because your changes to taxes and benefits won\’t have any effect on those market incomes, will they?

2 thoughts on “Lying with statistics”

  1. I am a Yank, and I get sick and tired of the constant propaganda about how the middle class and poor have had stagnating incomes for the last several decades. I am 55 years old, and it is obvious to me how much richer we are than when I was a kid. It should be obvious to all, but the pundits writing ideological points prefer not to see what is in front of their eyes.

    The most important of your points was about the size of the household. The leftists have been making this claim for years that USA income has stagnated when it is household income that has stagnated. Yet the size of households has decreased dramatically over that time period, so their analysis makes no sense at all. In fact, the reason US households have decreased is because of the rising wealth of US households. Kids can move out sooner and old folks have many options besides moving in with their kids.

  2. Plus the fact that, as you say, the benefits system isn’t taken into account.
    The original Beveridge proposals were for a system to prevent destitution not to provide a alternative lifestyle. There was also an impliocit assumption that it was mainly to cover periods when people were unemployed.
    We need to go back to the original principles.

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