AS INFLATION ROLLS along, people keep checking to see whether their incomes are falling behind prices. For the country as a whole, some of the familiar government statistics give a very gloomy answer. Average hourly earnings of production workers, for example, are lower today in relation to prices than they were in 1970. The Census Bureau says that the median family income, $19,680 last year, is hardly any higher in relation to inflation than it was at the beginning of the decade. After taxes, it was lower. Mr. Reagan was using these kinds of statistics on Friday evening when he said that the average American's purchasing power had shrunk over the nearly four years of the Carter administration. The decline has been particularly severe over the last year because of the recession.
And yet Americans were richer at the end of the decade than at the beginning -- or even than they were four years ago. Some of those statistics require a careful second look. American prosperity hasn't risen as fast as most people would have liked, or as fast as it did in the 1960s. But it's been rising in ways that the statistics sometimes miss.
Consider a family in which both parents earn $10 an hour. If they get a divorce and become statistically two families, average family income is cut in half. Suppose that the couple's child, living with one parent, then graduates from school and gets a job at $4 an hour. That family's average wage drops from $10 an hour to $7, although the family has more money than it did before. The rise in divorces over the last decade, the smaller families and the arrival of large numbers of young people in the labor force have all affected the average income figures.
The statistics on earnings don't count fringe benefits, and in the 1970s the fringes became a much more important part of most people's compensation. Some are in the form of health insurance, life insurance and pension rights. Some are in the form of leisure, like longer paid vacations, or educational benefits.In 1975 the average automobile worker, for example, earned $6.42 in cash. But total compensation, with the fringes, was $9.60 an hour. Cash pay was up to $9.47 in early 1980 -- representing a slight erosion in its purchasing power because of inflation. But total compensation was up around $16 an hour, staying well ahead of inflation. For the whole economy, from 1970 to this year, hourly compensation rose about 15 percent faster than inflation.
One reason for the rapid increase in fringes is that they are tax-free. If employees buy their own insurance, they pay the premiums with money on which they have paid income taxes. If an employer pays the premiums, it's a cost of doing business and not taxable income. Through this device most American working people -- especially those in big companies -- now enjoy substantial amounts of tax-free income.
Americans have fallen into an excessively gloomy state of mind about their money. The inflation -- and the uncertainties that it sows -- is responsible for it. But in the great anxious struggle to catch up with inflation, Americans might usefully pause to take note that, throughout the 1970s, most of them never fell behind.