…Until last year many people – but not most economists – thought that the economic data told a simple tale.
On one side, productivity – the average output of an average worker – was rising. And although the rate of
productivity increase was very slow during the 1970’s and early 1980’s, the official numbers said that it had
accelerated significantly in the 1990’s. By 1994 an average worker was producing about 20 percent more than
his or her counterpart in 1978.
On the other hand, other statistics said that real, inflation- adjusted wages had not been rising at anything like
the same rate. In fact, some of the most commonly cited numbers showed real wages actually falling over the
last 25 years. Those who did their homework knew that the gloomiest numbers overstated the case…Still, even
the most optimistic measure, the total hourly compensation of the average worker, rose only 3 percent between
1978 and 1994…
…But now the experts are telling us that the whole thing may have been a figment of our statistical
imaginations… a blue-ribbon panel of economists headed by Michael Boskin of Stanford declared that the
Consumer Price Index [C.P.I.] had been systematically overstating inflation, probably by more than 1 percent
per year for the last two decades, mainly failing to take account of changes in the patterns of consumption and
improvements in product quality…
…The Boskin report, in particular, is not an official document – it will be quite a while before the Government
actually issues a revised C.P.I., and the eventual revision may be smaller than Boskin and his colleagues
propose. Still, the general outline of the resolution is pretty clear. When all the revisions are taken into account,
productivity growth will probably look somewhat higher than it did before, because some of the revisions being
proposed to the way we measure consumer prices will also affect the way we calculate growth. But the rate of
growth of real wages will look much higher – and so it will now be roughly in line with productivity, which will
therefore reconcile numbers on productivity and wages with data that show a roughly unchanged distribution of
income between capital and labor. In other words, the whole story about workers not sharing in productivity
gains will turn out to have been based on a statistical illusion.
It is important not to go overboard on this point. There are real problems in America, and our previous concerns
were by no means pure hypochondria. For one thing, it remains true that the rate of economic progress over
the past 25 years has been much slower than it was in the previous 25. Even if Boskin’s numbers are right, the
income of the median family – which officially has experienced virtually no gain since 1973 – has risen by only
about 35 percent over the past 25 years, compared with 100 percent over the previous 25. Furthermore, it is
quite likely that if we “Boskinized” the old data – that is, if we tried to adjust the C.P.I. for the 50’s and 60’s to
take account of changing consumption patterns and rising product quality – we would find that official numbers
understated the rate of progress just as much if not more than they did in recent decades…
…Moreover, while workers as a group have shared fully in national productivity gains, they have not done so
equally. The overwhelming evidence of a huge increase in income inequality in America has nothing to do with
price indexes and is therefore unaffected by recent statistical revelations. It is still true that families in the
bottom fifth, who had 5.4 percent of total income in 1970, had only 4.2 percent in 1994; and that over the same
period the share of the top 5 percent went from 15.6 to 20.1. And it is still true that corporate C.E.O.’s, who
used to make about 35 times as much as their employees, now make 120 times as much or more…
…While these are real and serious problems, however, one thing is now clear: the truth about what is
happening in America is more subtle than the simplistic morality play about greedy capitalists and oppressed
workers that so many would-be sophisticates accepted only a few months ago. There was little excuse for
buying into that simplistic view then; there is no excuse now…
According to the passage, “Boskinization” adjusts the C.P.I. by:
Section: Verbal Reasoning