Conventional Wisdom, once again is not

One of the continuing discussions at all levels in public policy has been the assumed decimation of the middle class.  Many commentators on the left and indeed even a couple on the right have suggested that since the early 1980s that the bottom of the economic pyramid has been dealt with cruelly ' the rich have gotten richer and the poor have gotten poorer.

There are some facts that are indisputable.  For example, the value of a high school diploma has declined in real value over the last several decades.   But a study by an economist from the Joint Committee on Taxation and one from Indiana University argues that when you impose some controls on the data that allows you to compare apples to apples - the numbers are not nearly as bad as the wonks with an agenda have suggested.  The numbers are reported in an article that raises some broader questions like which is more efficacious an increase in the minimum wage or expansions of the Earned Income Tax Credit?   Turns out the EITC is a better vehicle (although one could argue there are other consequences of expanding the EITC).

What are those controls?  Well, first, in order to make comparisons across time it would be a good idea to adjust for household size.  At the same time one should also account for changes in fringe benefits and for government transfers.  When you do all that the differentials change a bit.  Everyone is better off.  For example, without the controls the bottom 20% of the income curve suffered a decline of a third in their incomes.  But when you control for the variables they actually received an increase of better than a quarter.   The middle 20% show an increase from a 2.2% to a 36.9% improvement.   Those numbers are pretty dramatic.   The entire article can be accessed at the Journal of Policy Analysis and Management.