In fact, gas is cheaper today

In fact, gas is cheaper today

Since we’re on a “gas prices”/economics kick over the past couple of days, let’s keep the ball rolling. A commenter in the Not really “record prices” thread asks:

Have you taken into account inflation…in relation to the fact that average wages have not kept up with inflation?  Min. wage in particular would be much higher if it had kept up with inflation.  I am willing to bet that, if the numbers were crunched, one would find that the % of income required to travel the same distance is much greater today than it was in the past.

So, I decided to do the work. First, the minimum wage isn’t what we should be looking at, but instead wages across all sectors. The US Department of Agriculture has a handy graph showing wages, in inflation-adjusted constant dollars, between 1981 and 2005.

In 1981, the average non-farm income per hour was $7.25.
In 2005, the average non-farm income per hour was $16.34.

That’s an increase of 125 percent.

Meanwhile, according to this web site, which is distinctly unfriendly to President Bush, conservatives, and oil companies, the cost of a gallon of gas in inflation-adjusted dollars has not fluctuated nearly as much.

In 1981, at the peak of the 70s/80s oil crisis, a gallon of gas reached $2.73 per gallon.
Today, a gallon of gas costs $2.94 per gallon.

That’s an increase of 7 percent.

Even if you use the peak price back after Katrina, last September, of $3.13 per gallon, that’s still only a 14 percent increase.

So in fact, the impact of a gallon of gas on the average income has not increased at all, but as a percentage of income has dropped dramatically.

In 1981, the average wage-earner had to work for 30 minutes to earn enough for one gallon of gas.
Even at the peak last September, it only took 11-1/2 minutes to earn enough for the same gallon of gas.

Makes you think. And since cars are generally more fuel-efficient today…

Update: In case, you don’t know what inflation-adjusted dollars are, here are two explanations: “Real v. nominal in economics” and “Constant dollars.”

Update 2: (From a comment I posted below) It looks some commenters are alleging that I made a mistake and used actual dollars and not inflation-adjusted dollars for the wage figures in 1981 and 2005. Just to double check, I looked for independent confirmation. The US Census Bureau offers historic income tables that are adjusted for inflation. The most comprehensive table shows a similar change. The figures will be slightly off because it is 1981 to 2003 and it is measuring yearly income not hourly wage. Still there is the same marked rise in income. A lot of wealth was created in this country during the Reagan boom and the other economic booms after that.

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Domenico Bettinelli

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