The word on Capitol Hill is that an investigative subcommittee in the House of Representatives is gathering evidence relating to statements made by Secretary of Labor Robert Reich regarding the collection and use of data in his department. The main issue is whether Mr. Reich distorts economic trends by misuing data compiled by the Bureau of Labor Statistics (BLS).

I did my own informal investigation. First, I read a Joint Economic Committee (JEC) of Congress report by Rep. Jim Saxton suggesting that Mr. Reich plays loose with the facts. In the release, JEC economist Christopher Frenze observed that while Mr. Reich has talked about a decline of over 2 percent in real wages over the past year, offical BLS data show a decline of only a small fraction of 1 percent. This supporta the view that Mr. Reich is politicizing his department by misuing data gathered by the prestigious BLS.

The biggest issue relates to living standards for workers. Mr. Reich has been arguing that American workers are facing deteriorating living standards. On Nov. 7, he said “There is something wrong with rising profits, risking productivity and a soaring stock market, but employee compensation heading nowhere.”

Yet my reading of economic data over the past two decades paints a very different picture. The accompanying table shows five alternative indicators of changing American economic welfare from 1973 to 1994, most of the data provided by Mr. Reich’s own Labor Department. Only the first measure, real hourly earnings, shows any decline. However, that measure excludes fringe benefits provided workers. The second measure, real compensation per hour, includes fringes, turning the earnings decline into a modest increase.

Furthermore, the first two measures suffer from a widely acknowledged offical overstatement of inlfation in the 1970s and early 1980s. Using a better price index (CPI-U-X1) shows that real compensation per worker actually rose fairly substantially over the past two decades. Total income available per person (disposable per capita income) rose even more, by one third.

Yet another measure of human economic welfare, consumer spending, rose an impressive 40 percent per person in real terms. And this figure does not fully reflect the improved quality of goods available to consumers. How many Americans in 1973 had VCRs, microwaves, CD players, or home computers?

The quote above implies that Mr. Reich believes corporate profits are rising as wages languish. The national income data tell a different story: In 1973, there were $6.98 in wages earned for every dollar of corporate profit; in 1994, the figure was $7.38. Is Mr. Reich using the rhetoric of class warfare to promote pet solutions to a non-existent problem?

The calculations above are from the year 1973, since that is widely considered the beginning of the U.S. productivity slowdown. The story is much the same if the analysis is confined to more recent time periods. While the narrow real-wage measure again shows stagnation, this is not true of better, broader measures of economic welfare, such as real per capital consumption, which is at an all time high.

A respectable case can be made that the continued fairly rapid rise in the standard of living of Americans is threatened by relatively slow labor productivity growth. Mr. Reich, however, is not content to make that case, preferring to distort the record and exaggerate problems facing American workers.

Worse, Mr. Reich’s solutions for the legitimate provlem of slow-growing productivity—government mandated training programs and other public policies designed to promote income redistribution towards workers—historically simply have not succeeded in promoting the welfare of working America.

My own ongoing research at the Center for the Study of American Business suggests that one-third to one-half of the productivity slow-down was caused by government itself, rising burdens on business arising from explicit taxation and implicit taxes in the form of increased government regulation. Regulatory spending has roughly quintupled in real terms in the past 30 years, and the constraints it places on businesses materially alters the allocation of resources and interferes with market efficiency.

In distorting the record, Mr. Reich is contributing to the problems facing the American worker, not the solution. He is detracting from an informed national debate on economic policy based on facts, not fiction.

Fig. 1: CHANGING ECONOMIC WELFARE OF AMERICANS
Five measures 1973-1994

Economic         	U.S. government     Percent
measure         	department data source  change
___________________________________________________________________
Real hourly earnings total
private non-agricultural
economy            	Labor        	-13.5%
Real compensation per hour,
business sector        	Labor        	+ 9.6%
Real compensation per hour,
business sector;
CPI-U-X1price index      	Labor        	+16.2%
Real disposable income
per capita          	Commerce      	+33.4%
Real consumption
spending per capita      	Commerce      	+40.6%