WAGE-EARNERS BETTER OFF THAN STATISTICS SHOW : NUMBERS DON'T JIBE WITH ECONOMIC PROSPERITY AMERICANS HAVE ENJOYED.

Byline: Gary M. Galles Local View

Despite good news that median household income reached a new high in 1998, it wasn't enough to stave off the hounds of woe.

Special interests seeking ever more government intervention used the U.S. Census Bureau's recent annual report to bemoan those working men and women supposedly being left behind by the economy.

The facts, they say, speak for themselves. Americans are working harder but seeing little of the gains ``after adjusting for inflation'' from 1989 to 1998.

Based on such dire data, we need to reinvigorate unions, increase the minimum wage, pass living wage laws, restrict immigration and imports, increase government job training, expand the earned income tax credit, expand workplace regulation, subsidize exports, and more.

All of this raises an important question: Are the numbers accurate?

It doesn't seem to square with the apparent economic prosperity Americans have enjoyed. How can last year's wages, after being adjusted for inflation, be barely higher than in 1989 and actually lower than in 1969?

In fact, don't adjust your lifestyle. The doom and gloom pushers are relying on measures that miscalculate inflation over time.

The problem is that the consumer price index, which is used to measure inflation, systematically overstates increases in the cost of living. As a result, official inflation-adjusted wage figures substantially underestimate improvements in workers' well-being over time, and can even turn actual economic growth into apparent economic stagnation.

The index overstates inflation by underestimating people's ability to shop around for bargains and for improvements in the quality of products.

These biases were revealed by the Senate Finance Committee's Advisory Commission, which concluded in 1996 that the index substantially overstated the actual rate of price inflation by about 1.3 percentage points a year.

That may not sound like much, but over time, it makes a big difference. It would add 6.7 percent to inflation over 5 years; 13.8 percent over 10 years; 29.5 percent over 20 years; and 47.3 percent over 30.

With such substantial biases compounding over time, it is no wonder that the good old days look so good, compared with the present.

More accurately estimated, the gloomy real wage data are quite positive. The nine years from 1989 to 1998 produce a roughly 12.3 percent inflation overstatement by the index.

Adjusting the small 1.9 percent increase in official real wages reported by doom-sayers shows an actual real wage increase of about 14 percent.

When more accurately adjusted for inflation, the real wages of American workers have been growing substantially. The economic news has been very good, and workers have not been left out of it.

The gloomy official real wage data are actually just a statistical mirage, so there's no need for any of the ill-conceived and counterproductive political cures to help workers.