Posts Tagged ‘salaries’


Inflation appears at first sight an extremely obvious, trivial thing. But its analysis brings out that it is a very strange thing…

One one level, inflation is extremely obvious: it’s an increase in the prices of the commodities people buy. Bread, gasoline, housing, and so on. When their prices go up, we are witnessing (and, for many, suffering) inflation. (The opposite, when prices fall, is deflation.)

Why is inflation important? Well, for most of us, our money (or nominal) incomes are eaten away by increases in prices. Therefore, over time, our real incomes are less than our nominal incomes, thus permitting us to purchase less.

Here’s an illustration of the difference:


According to calculations by Doug Short, while nominal income of the average household in mid-2014 was about 32 percent higher than it was in 2000, real household income had actually declined by about 6 percent. In other words, just because median household income had grown in nominal terms doesn’t mean that their standard of living—in terms of commodities they could purchase—had actually gone up. In fact, it went down (and had been going down for most of the 2000s, even before the Second Great Depression began).

But then there’s a second issue. Friends and acquaintances often complain to me that, while “the government” is reporting relatively low inflation (of less than 2 percent in recent years), the prices of the commodities they’re purchasing seem to be going up more than that. (It’s a complaint that is aggravated by a whole host of liberal economists arguing that economic policy should encourage a level of inflation higher than the official rate.)

Part of the problem is that there are different measures of inflation. The headline number is the Consumer Price Index, calculated by the Bureau of Labor Statistics. (Technically, the measure most reported in the press is CPI-U, the Consumer Price Index for urban consumers.) Why is the CPI (or CPI-U) so important? Because it’s often used to “deflate” (i.e., correct for price changes) a wide variety of government programs, such as Social Security. And it’s often used by employers to justify small wage and salary increases—as in “Inflation is low, so your expectation of a larger increase in what I pay you is simply not justified.”

The major problem with the BLS measure of inflation is that it’s not based on a fixed basket of goods. Instead, the presumption is that people substitute some commodities for others they had been purchasing.(As the BLS explains, “The ability to substitute means that the increase in the cost to consumers of maintaining their level of well-being tends to be somewhat less than the increase in the cost of the mix of goods and services they previously purchased.) So, the CPI is not really measuring what is costs us to purchase the commodities we’re used to consuming.

As Perianne Boring explains for Forbes,

the CPI is not a measurement of rising prices, rather it tracks consumer spending patterns that change as prices change. The CPI doesn’t even touch the falling value of money. If it did the CPI would look much different.

The issue gets even more complicated because there are lots of different measures of inflation out there. In addition to the BLS measure (which is used for government programs like Social Security as well as the Federal income tax structure), there’s the Personal Consumption Expenditure (PCE) index collected by the Bureau of Economic Analysis, which is closely followed by the Federal Open Market Committee; the core PCE price index, which excludes the more volatile and seasonal food and energy prices; the Producer Price Index (PCI), which measures the average changes in prices receive by domestic producers for their output; the GDP deflator, the measure of prices calculated by the Bureau of Economic Analysis that used to calculate the “real” amount of goods and services produced in the U.S. economy; and many others.*

My own view, for what it’s worth, is the real rate of inflation for consumer goods is higher than the official rate of 2.2 percent (over the past 12 months), thereby understating the extent to which working people are facing rising prices for the commodities they need to purchase in order to maintain themselves and their families. In addition, most people are receiving wages and salaries that simply are not rising much more, from one year to the next, than the official inflation rate.

Therefore, it’s not surprising that people are feeling squeezed and find the kinds of economic policies advocated by mainstream economists quite strange—both the call for austerity by conservative economists (based on the idea that galloping inflation is right around the corner) and the call for more inflation (based on the idea that real interest rates should be negative, in order to boost economic activity). Neither policy—abounding as they are in metaphysical subtleties and theological niceties—would help working people who, right now, are facing both rising prices and stagnant incomes.


*And then, of course, there’s the measure of inflation produced by John Williams for Shadow Government Statistics. The ShadowStats measure is much higher than the official rate: anywhere from 6 to 10 percent, compared to the official (CPI) rate of 2 percent. Doug Short notes a problem with the ShadowStats price index: a 1967 median household income of, let’s say, $7,143 in 2012 dollars would have had the purchasing power of $185,588.


Special mention

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As March Madness comes to a close,* let’s turn to the same AAUP report to look at spending priorities in today’s university.

As we have documented in recent editions of this report, full-time faculty salaries have generally been stagnant for the last several years. We examined above how changes in faculty pay have compared to salary increases for senior administrators. Here we compare changes in median compensation for full professors to those for head coaches of men’s athletic teams in Division I, in a sampling of both “revenue-generating” and non-revenue-generating sports. The period covered spans 2005–06 to 2011–12, which includes the recession during which many faculty members were told that budgets were tight and raises were unavailable.

As figure 5 illustrates, by far the largest increases in compensation during this time period went to coaches—and not only in “major” sports. The median D1-A men’s basketball coach saw his pay increase by more than 100 percent, after inflation. D1-A football coaches scored slightly less, with a median compensation increase of 93 percent. But even coaches in so-called “minor sports” such as cross country, track, golf, soccer, and tennis racked up increases in their compensation packages that far exceeded those earned by full professors across all four institutional types. The lowest-scoring coaches, in cross country and track at D1-AA universities, saw their real compensation increase by 9 percent over these six years, which is more than double the 4 percent increase earned by the median full professors at doctoral universities. In contrast to the coaches, full professors at associate’s degree colleges actually experienced a loss in their compensation of 5 percent between 2005–06 and 2011–12.

Remember, also, that very few schools have athletic programs generate enough revenues to finance themselves as well as other sports.

The NCAA collects annual data on revenues and expenses of athletics programs from its member institutions.In the reports for 2012, of the more than one thousand college and university members of the NCAA, only twenty-three institutions reported that their athletic programs ran a surplus, with revenues greater than expenses. Those twenty-three institutions were all in D1-A. The NCAA includes the following revenue sources in its reporting: payments for the rights to broadcast games through television, radio, or the Internet; contributions from individual and corporate donors; program and novelty sales; parking; sponsorships; ticket sales; sports-camp revenues; endowment and investment income; NCAA conference distributions; and direct institutional support. Even when all these sources of revenue are included, the NCAA reports that the median institutional subsidy in 2012 accounted for 27.5 percent of the athletics program budget in D1-A, 73.0 percent in D1-AA, and 81.7 percent in D1-AAA.


*A period that has been a real problem for someone like me, who teaches at, was raised in the same state as, or has good friends who work at the four schools in the women’s and men’s Finals. That’s a lot of hoops to watch!


According to the American Association of University Professors, in Losing Focus, its latest annual report on the economic status of the profession,

Figure 2 compares thirty-five years of data on administrative salaries from the CUPA-HR Administrators in Higher Education Salary Survey cited above with faculty salary data collected by the AAUP. It would have been preferable to disaggregate the analysis into more specific institutional categories, but that level of data on administrative salaries was not available. In the data from public institutions, the increases in median salary paid to four senior administrative positions were at least 39 percent after controlling for inflation, with the increase in presidential (“chief executive officer” in the parlance of the report) salary much greater at 75 percent. By contrast, and probably not surprising to regular readers of this report, the cumulative increases in mean salary for full-time faculty members were mostly less than half as great. The same pattern held in the private-independent sector, although the rates of increase for all positions there were larger. Median presidential salary jumped 171 percent above the rate of inflation, and the other three administrative salaries increased at least 97 percent, while the uptick in mean salaries for full-time faculty members reached only 50 percent or less. . .

As the longer-term analysis in figure 2 also shows, salaries for presidents in recent years have generally increased more rapidly than those of other administrators, reflecting greater concentration of authority in a single “CEO.”. . .But across all institutional categories, the average increases in administrative salaries are greater—in most cases, much greater—than those for full-time faculty members. The contrast is especially sharp at the private master’s degree universities, with senior administrators receiving double-digit increases while average faculty salaries stagnate or decline. . .

Some commentators have argued that the outsized and rapidly rising salaries paid to many presidents, especially, have only a trivial impact on institutional budgets that may amount to hundreds of millions (or even billions) of dollars annually. While that may be true from an accounting standpoint, the salaries paid to senior administrators are highly symbolic. As we have argued previously, they serve as a concrete indication of the priorities accorded to the various components of the institution by its governing board and campus leadership. Disproportionate salary increases at the top also reflect the abandonment of centuries-old models of shared campus governance, which have increasingly been replaced by more corporate managerial approaches that emphasize the “bottom line.”