No Income Gain for Young College Grads

Posted by: Michael Mandel on August 26

The latest income distribution numbers are out from the Census Bureau. There’s something there for everyone, Democrats and Republicans. Real median household income is up, real mean household income is down. Real median earnings of both male and female full-time workers rose, but Real per capita income fell.

For my part, I’m back to my regular business of being concerned with young college grads—the ones who don’t have advanced degrees. Basically, the last numbers show almost no change between 2006 and 2007 (as the chart below shows). Young college grads still have not made back their losses from the earlier part of the decade.


runningcollegewages_21503_image001.gif

I’ll have more in a bit.

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Reader Comments

Kartik

August 26, 2008 03:32 PM

Always remember that 2000 was an artificially high base. Extend the graph back to 1990, and it still looks good by 2007.

Furthermore, the wages of BS-only grads in India and China have risen by 100% over the same period.

I think it is a net positive for the world that over this decade, US college-grad wages dropped by 6% while India/China wages rose by 100%. In aggregate, the WW wages of college grads rose a lot (maybe 20% as a weighted average?). It's a good outcome on a WW level, and I'll take it quite happily.

Eric

August 26, 2008 07:05 PM

Kartik's description is interesting; however, the assertion about globalization is that a "rising tide raises all boats".

He notes that while U.S. salaries are dropping, others are going up.

Which suggests that globalization is not so much "raising all boats" but instead is trending towards a leveling of salaries globally.

U.S. workers are likely to see their salaries continue to fall until they meet the rising salaries of other high population countries where incomes are low, in part, because their comparative advantage is poverty.

U.S. politicians and economists may have to revise their rhetoric that globalization is good for everyone in the U.S.

LAO

August 27, 2008 12:10 AM

The economy appears to be constructed to reduce wages, not too surprising, since labor is the most expensive component of business costs in a service economy. At least consumer and oil imports, as well as funds sunk in Iraq, represent money that once would have gone directly or indirectly to U.S. infrastructure and workers. U.S. workers are spending a significant part of their falling income to benefit foreign nations, whereas they formerly spent nearly all to benefit U.S. workers -- that money is not available to pay domestic service wages. GDP growth is not sufficient to compensate. Business has chosen to apply wage reduction to newer workers, in order to reduce future expectations and obligations and avoid profit reductions. The only thing that can have a major impact is (1) exchange rate, transportation cost, and foreign inflation impact extreme enough to dissuade foreign purchases or bring some manufacturing back to the U.S.; (2)consumer boycott of foreign goods, in concert with increased domestic service purchases; or (3) trade and policy changes.

Mike Mandel

August 27, 2008 11:11 AM

Kartik,

You've got a point on a worldwide basis. As far as I know, no one has ever done that calculation, and it's not obvious how to phrase the question clearly. Still, it's interesting.

Kartik

August 27, 2008 02:15 PM

Mike,

Yes, it would be hard to gather statistics for the whole world.

I know for a fact that Indian software engineering salaries for entry-level positions were just $10,000 in 2000, but are about $22,000 today. A bit of this is due to a weak dollar, but the majority is due to salary increases in Rupees.

The US has remained at about $50,000 (give or take a couple grand) for the same software engg. job during this decade.

Thus, the delta with the US has compressed with the US. There is more compression to go, but the greatest imbalance is already in the past.

Overall, this is a strong net positive for the world. Indians and Chinese are becoming consumers for US exports, while US salaries have only dipped slightly, certainly not enough to seriously crimp the bar-hopping and iPod/Wii purchasing of 22-year-old college grads.

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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