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Home Publications Blogs Beat the Press The Washington Post Doesn't Know About Inflation

The Washington Post Doesn't Know About Inflation

Tuesday, 26 April 2011 05:16

An article that reported on Detroit's plans to cut wages and benefits for its employees told readers:

"meanwhile, entry-level office workers earn just $17,000 a year. Similar work paid $7,000 a year in 1970."

It would have been helpful to point out that prices have roughly quintupled in the last 40 years. This means that it would take a salary of $35,000 a year to be equivalent to the $7,000 a year that was reportedly paid in 1970. This means that the real wage for entry level positions has been more than cut in half even though productivity has more than doubled over this 40 year period.

It would also have been helpful to point out that many public sector employees are not covered by Social Security. This means that the 911 operator, whose $24,000 pension was highlighted in the article, may not have any other source of retirement income.

Comments (8)Add Comment
written by izzatzo, April 26, 2011 5:46
This means that it would take a salary of $35,000 a year to be equivalent to the $7,000 a year that was reportedly paid in 1970.

Not really. When the latest market basket of goods used by middle and lower classes to construct the CPI includes eating dog food and sleeping in a shelter it works out to about a $7,000 salary in 2011 as well in real terms.
written by PeonInChief, April 26, 2011 7:52
Whoa! $24K a year! It's champagne and caviar every night!
written by skeptonomist, April 26, 2011 8:11
I think that anyone not covered by Social Security must have a pension guaranteed by some kind of government (don't know the exact rules). Of course conservatives now want state and local governments to renege on these pensions. It may be necessary for Congress to extend SS to those whose pensions have disappeared because of local government bankruptcy.
The Most Significant Data on Detroit's Pension Problems
written by Ron Alley, April 26, 2011 8:23
The Times also reported this story.

The most significant points raised by the Times are:
The struggles of Detroit, of course, are extreme. The report by the arbitrator, Thomas W. Brookover, noted that although the city’s unemployment rate was officially 28 percent, there was evidence that less than 37 percent of the city’s residents were actually working. The population had crashed. Property tax revenues were dwindling.

The Detroit of the 1950's and 60's was a vibrant city of perhaps 1.5 million. Today, Detroit is almost certainly under 300,000 in population. The decline in population did not happen overnight but gradually over a 40 year span. Detroit's problems were apparent to anyone who cared enough to look at them.

The sad truth is that Detroit -- the economic institution -- is subject to the principles of economics. We would not expect a corporate entity in similar circumstances (declining demand for its services and declining revenue) to fund retirement plans and to continue to provide jobs to all its workers. We provided a mechanism for General Motors to deal with a similar decline.

Unfortunately, we have lacked the vision to deal with Detroit's problems until they have become a crisis. Now we lack the creativity to provide support and structure to enable Detroit to turn around its decline. Its problems are massive. Blighted neighborhoods, crumbling infrastructure and a tax base that has disappeared. Despite the tone of the articles in the Times and the Post, the State of Michigan does not have a solution to Detroit's problems. The steps prescribed by the Republican led government are nothing more than a ham-handed attempt to stoke festering Republican resentment and racism in areas such as Kent and Oakland counties.
written by AbqMike, April 26, 2011 8:38
Dean and Skeptonomist, do you have any idea of what proportion of state and local workers are not in the SS system. I think that all new hires in state and local government have been required to enroll in SS for many years. Skeptonomist is right that many governmental agencies having been diluting pension benefits of late. Moreover, under SS rules SS benefits are reduced for beneficiaries of state pensions.
written by leo, April 26, 2011 9:47
In certain states (say, Illinois), if you're working for the state, you might get a lousy 403(b) plan (based on your lousy pay) and absolutely no possibility of signing up for Social Security -- even if you were ready to pay for it on your own.
S&L Workers in SS
written by Dean, April 26, 2011 7:30

Around 30 percent of S&L workers not in SS. In some cases new workers are being required to join SS, but there are still many state and local governments that maintain plans that are completely outside SS. As a I recall, existing plans could be grandfathered, but there once inside SS, no governmental unit can later leave.
written by Bill H, April 27, 2011 12:25
"This means that the 911 operator, whose $24,000 pension was highlighted in the article, may not have any other source of retirement income."

Nonetheless, I'll trade that retired worker for my $14,000 Social Security Pension. Twit.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.