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'Raise' in income fictitious


Last updated 4/12/2007 at Noon

On Sunday, March 4, the Secretary of the Treasury appeared on TV and trumpeted that the “average” US worker has seen a one-percent raise in his income. The fallacy, of course, relates to the word “average.”

Here’s a hypothetical case. Ten thousand factory workers in Michigan saw a one-percent loss in relative income due to inflation during the year. Using the number for each worker of $24,000 in wages per annum, the 10,000 workers would have a total income of $24 million annually. Assuming that the cost of living increased by at least one percent during that same year, the total loss in income to the 10,000 workers would be $2.4 million.

Now, in that same area of Michigan, and after a successful year (in the eyes of the shareholder), a corporate CEO received a $4.8 million bonus (not unusual these days). In other words, he got a $4.8 million raise. Now, if we add this one man to the other workers, we come to 10,001 total. The one-percent loss to the 10,000 workers now becomes a one-percent raise since the $4.8 million to the CEO, when “averaged” over the whole 10,001 workers, means that the one-percent loss of $2.4 million is transformed into a one-percent gain due to the influx of $4.8 million to the equation!

The 10,000 factory workers will never see anything of this fictitious increase – but the “average” method used by the administration makes it so. Pretty neat, eh?

Robert F. Green


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