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Statistical Despair

December 10, 2018

A recent report on the television news was, typically, scary. Or at least depressing. It seems that the average wage over the past year has not gone up as fast as inflation. The message is clear. Families are suffering, children are starving, and employers, icons of greed that they are, are stashing away cash filched from those they have virtually enslaved.

But the story could just as well have been good news. That the economy is stable and ticking along just as it's supposed to. What, you say? How could wages be flat if the economy isn't in trouble? Aren't wages supposed to rise? Yes, they are. And they did.

But, you say, they didn't. They stayed flat. Yes, they stayed flat on average, but not for individuals who make up that average.

Here's an analogy (I'm indebted to economist Anthony Davies of the Foundation for Economic Education). If today, we take the average age of Canadians, it's about forty according to Statistics Canada. (For nitpickers, that's actually the median age, not the average, but close enough.) Now let's wait for ten years and take the average again. It will be about forty, give or take.

But how can this be? We've all gotten ten years older. Well, no, we haven't. In those ten years, a lot of people, mostly older, will have died, and a bunch more, all young, will have been born, so the average remains about the same. Yes, we've all aged, but the average doesn't change.

The same thing is true of wages. Over time, most people's wages increase with their experience and their skills. But some people retire and new people replace them. The wages of retirees are almost always higher than those of entry-level workers. The average remains the same.

But, I hear the objection, over the long term, average ages have gone up. True, by some ten years in the past thirty. That's mainly due to advances in medicine that allows us to stick around longer. The same thing is true of wages. Over the long term as productivity increases, wages will rise. But in the short term, which is the only period the media seem to understand, in a stable world, average wages and average ages will stay about the same.

One final lament was that wages didn't rise as fast as inflation. So what? Where is it written that in the national turmoil of millions of employees and a million-plus employers, the increases that people get will exactly net out to the inflation rate? I'll bet we won't hear when wage increases exceed inflation. Or we will, but the media will find some rationale to make it dire.

I guess the real message is that a news story that doesn't seek the darkest interpretation isn't of much interest to the media.