Faring Better Under Reagan-Bush

One of the central issues in the presidential campaign is whether American families are better off in 1988 than in 1981 (and, as a corollary, what happened to them from 1977 to 1981). The general data on the economy is outstanding: real gross national product up well over 20% during the Reagan-Bush Administration; inflation and interest rates down to one-third and one-half their 1980 levels, respectively; the unemployment rate down to levels not seen since the early 1970s; almost 18 million new jobs created in this, the longest peacetime postwar economic expansion.

Average income per person after inflation reached an all-time high in 1987, rising for the fifth straight year, and continues to grow. Median income after inflation--that of the family exactly in the middle, with half above and half below--also reached an all-time high in 1987, up 10% over 1981. It fell 7% from 1977 to 1981. The Congressional Budget Office reports still more impressive gains in family incomes when they are adjusted for family size (the typical family is smaller now, so family income is spread over fewer people than before) and for a more accurate measure of inflation.

But even with a healthy discount for campaign rhetoric and political hyperbole, three arguments have been advanced--although not substantiated--that American families are not doing nearly as well as the data suggests.

The first charge is that “the only reason family incomes rose during the Reagan-Bush Administration is that women were forced to go to work as second earners in families in order to make ends meet.” The statement is demeaning to women and suggests that those who have decided to tackle the tough task of both raising families and working in the marketplace are doing so involuntarily. Let’s look at the facts. From 1981 to 1987, income grew more than twice as fast as women joined the labor force. From 1977 to 1981, it barely kept up.

In fact, the rate women join the labor force has been rising for more than 40 years. It grew more rapidly in the 1970s than in the 1980s, and more rapidly during the Carter-Mondale Administration than during the Reagan-Bush Administration.

Further, while women joined the work force more rapidly under Carter-Mondale than under Reagan-Bush, they had a much harder time finding jobs back then than they do now and also a much harder time finding jobs than men did. During the Carter-Mondale era, unemployment of women averaged 1.6 percentage points above male unemployment. In August, as it has on and off during the Reagan-Bush era, the female unemployment rate fell below the male unemployment rate.

Finally, the relative pay gap between men and women, which had been unchanged for 30 years despite much activist legislation, has finally and belatedly begun to narrow in the 1980s.

The second charge made by critics is that earnings have not kept up, i.e., “average hourly earnings are no higher now than they were in 1978.” Average hourly earnings after inflation are up slightly from 1980, with the slow growth partly reflecting the enormous influx of new workers into the labor force. One cannot expect new workers to start at the same pay as more experienced workers.

More importantly, the real damage to average hourly earnings occurred in 1979 and 1980, the last two years of the Carter-Mondale Administration. In those two years, average hourly earnings, adjusted for inflation, fell 3.1% and 4.0% respectively, the two worst years for average hourly earnings in the postwar history of the United States. Worse yet, workers’ earnings not only failed to keep pace with inflation, but back then our tax system was not adjusted for inflation, so these workers were driven into higher tax brackets (and tax brackets were much higher then) while their real before-tax earnings fell.

A slightly broader measure than average hourly earnings is average total compensation, including fringe benefits. It is up a little more than earnings since 1980, despite the immense influx of new workers and, like average hourly earnings, it was clobbered in 1979 and 1980. This data is adjusted for inflation using the consumer price index, which is widely recognized to have slightly overstated inflation in the late 1970s and early 1980s.

Using an improved measure now widely preferred, the Congressional Research Service reports that average earnings really grew more rapidly than the traditional measure suggests. (The CRS also includes a broader sample of workers in its calculations.)

A corollary of the statement that earnings haven’t kept pace is that “the jobs are not very good, they are mostly in the service sector.” This is an attempt to evoke a sort of statistical illusion, conjuring up images of hamburger flippers.

Actually, the United States has been a service economy for many decades. Services include a wide range of activities, most of which pay well: for example, many managerial and professional careers, including education, health, telecommunications, etc. The next time you hear on your TV set that jobs in the service sector are not very good, remember that your doctor and Dan Rather are in the service sector.

A related charge is that “the rich are getting richer, the poor are getting poorer, and the middle class is getting squeezed.” Under Carter and Mondale, there was a decline in the percentage of middle-income families--those with inflation-adjusted incomes between $20,000 and $50,000--but since there was also a substantial decline in the percentage of families with incomes above $50,000, the middle class was being squeezed downward into lower incomes.

Under Reagan and Bush, the exact opposite occurred. The percentage of families with incomes in the middle group fell slightly, but since the percentage of families with low incomes also fell, where did they go? An impressive fraction graduated to higher incomes, as the percentage of families in that category increased by more than one-third.

By the way, be wary of the way comparisons of economic performance assign dates to when Carter and Mondale were on watch and when Reagan and Bush should be accountable. For example, since there was a recession in 1982, many statistics date from the beginning of the recovery. Republicans blame Carter and Mondale for the horrible inflation in 1979-81 and feel that it is unfair to blame them for the recession that accompanied the reduction in inflation.

Democrats want to stick Reagan and Bush not only with the recession in 1982, but for the still-high inflation in 1981. In short, they want to jump ship the day they left office and deny blame for any alleged subsequent effects of what they did. Worse yet, they often cite data comparing 1988 with 1977, tagging Reagan and Bush for the poor performance of the Carter and Mondale years by saying that things are not much better now than when Carter assumed office. The real point is, things are a lot better than when Carter left office.

The data above uses the averages over the years 1977, 1981 and 1987, and thus is a compromise. Carter and Mondale thereby get credit for part of 1977, a recovery, and (for them) a low inflation year, and partial blame for 1981. Reagan and Bush get stuck with the 1982 recession in this accounting regardless of whose fault it was, and partial blame/credit for 1981. Since the major Reagan-Bush policy initiatives were not passed by Congress until late 1981, this seems like a fair compromise.

This tour through family-income data leads to only one conclusion: The overwhelming bulk of American families are better off in 1988 than they were in 1981, reversing the sorry performance between 1977 and 1981.