patrick.net

edmondov says

I was curious as to why rents have increased since the 1980s while
wages have been stagnant.

What the heck are you talking about? Stagnant? In 1986, my first permanent engineering job out of a top grad school paid me $37K in the bay area and that was only because they considered 2 years of grad school and a year's equivalent of summer hire as being the same as 3 years worth of work experience. Most of my peers were getting offers $2-5K less then mine.

Do you seriously think that entry engineering salaries have not gone up by at least a few multiples during the intervening 25 years? Bizarre.

And the thing that made it so much harder to purchase a house back then was 10% mortgage interest rates being the norm. You guys have absolutely no perspective.

Austinhousingbubble says

It's only bizarre if you completely avoid any mention of overall real inflation in your discussion.

Have real rents risen vs. real incomes? That is the appropriate question.

I was addressing the OP's (well established) contention that real wages, when adjusted for inflation, have remained flat for the past the 30 years or more.

fizbin says

What the heck are you talking about? Stagnant?

This is pretty well known to be true FYI.

Of course the cost of living has risen dramatically at the same time so even in a dual income earner family people have less to spend on the non-essentials, making dual income earner families today effectively poorer than single income earner families in the 70's.

fizbin says

Do you seriously think that entry engineering salaries have not gone up by at least a few multiples during the intervening 25 years? Bizarre.

They haven't, they've only doubled in 25 years:

In the Mid 80s, we're looking at $30k to start for entry level engineers fresh out of school. In the late 2000s, we're looking at $60k, although I think that's greatly exaggerated. But even granting it, that hasn't kept pace with inflation.

Meanwhile prices for basics have gone up multiple times: Gas, Housing, Beef, Eggs, Potato Chips, etc.

thunderlips11 says

fizbin says

Do you seriously think that entry engineering salaries have not gone up by at least a few multiples during the intervening 25 years? Bizarre.

They haven't, they've only doubled in 25 years:

In the Mid 80s, we're looking at $30k to start for entry level engineers fresh out of school. In the late 2000s, we're looking at $60k, although I think that's greatly exaggerated. But even granting it, that hasn't kept pace with inflation.

Meanwhile prices for basics have gone up multiple times: Gas, Housing, Beef, Eggs, Potato Chips, etc.

Homo Economicus. A Legendary Creature, like Bigfoot, claimed to exist by Pseudoscientists.

Well, its sample size of 1, but my brother graduated with an electrical engineering degree from Cal Poly, and started at $57K in the LA area in the early 2000's. Dunno if that salary structure was common or has changed. Do know he had two other job offers at higher starting salary, but declined those to work in a smaller company with a more laid back environment.

edmondov says

I was under the impression that rent prices
are determined by income levels but it seems not to be the only
factor.

Why should rent prices be determined by income levels? Rents are determined by supply and demand. For the most part rents are inelastic.

People need somewhere to live (probably closer to work) and will cut out their coffee, luxury items, and double up before they stop paying rent.

robertoaribas says

I got my first engineering job at 34k in los angeles, 1987. weren't interest rates in the double digits then? factor that into your housing affordability thoughts.

Uh,that interest rate advantage is immediately worked on by the tax bill on the insanely high prices. :)

I'd agree that starting engineering salaries have roughly doubled since the 1980's. When I first graduated I got a contract position at a very large company as a mechanical/thermal engineer & the pay came out to around $66k gross. I think that an equivalent permanent position would have been more like $85k. This was around 2007, but also at a very competitive tech company in the SV.

I interviewed for a design position at BAE Systems after my contract gig was up and with 1 year of experience, the offer was for $59k to do design on APCs. Good thing I didn't take it...that whole division was shut down about a year later! I ended up pulling a permanent position at the place I was contracting.

So unless one lands an engineering job at a "hot" tech company, I'd say that engineering pay has approximately doubled since the 1980's if $30k was the average then for newbies.

bmwman91 says

So unless one lands an engineering job at a "hot" tech company, I'd say that engineering pay has approximately doubled since the 1980's if $30k was the average then for newbies.

Right, and I imagine the calculations in the above chart averages all engineers, including those working in "lower-tech" industries in Ohio or Tennessee, as well as those in a high-tech SV firm.

thunderlips11 says:
In the Mid 80s, we're looking at $30k to start for entry level engineers fresh out of school. In the late 2000s, we're looking at $60k ....

How can you misread your own graph so badly?
Entry level 1971 ~$10K
Entry level 2011 ~$60K
doubles every ~16 yrs
that's about 5% compounded annually.

The CPI does not average 5% and gas hasn't budged since 1980, when adjusted for CPI.
http://www.randomuseless.info/gasprice/gasprice.html

RBbuyer says

How can you misread your own graph so badly?
Entry level 1971 ~$10K
Entry level 2011 ~$60K
doubles every ~16 yrs
that's about 5% compounded annually.

That wasn't the claim I was responding to. Let's review it:

fizbin says

What the heck are you talking about? Stagnant? In 1986, my first permanent engineering job out of a top grad school paid me $37K in the bay area and that was only because they considered 2 years of grad school and a year's equivalent of summer hire as being the same as 3 years worth of work experience. Most of my peers were getting offers $2-5K less then mine.

Do you seriously think that entry engineering salaries have not gone up by at least a few multiples during the intervening 25 years? Bizarre.

So, here's the claim restated:

1. Fizbin claimed that in the intervening 25 years - that is, the 25 years from 1986 - 2011, NOT the 40 years between 1971 and 2011, engineering salaries increased by a "Few Multiples". "Few Multiples" means at least a 300% increase.

2. Starting salaries for Engineers in 1986, which Fizbin was pretty much in the ballpark, was about $30k. This slightly higher Bay Area compensation explained by high cost location vs. national average in the chart - obviously Engineers in Ohio or Tennessee tend to make less than those in the BA., since the Cost of Living is lower.

While the chart extends back to 1971, I only looked at the mid-eighties and onward part of the chart for my response. I did not use 1971 datapoints in my response.

RBbuyer says

The CPI does not average 5% and gas hasn't budged since 1980, when adjusted for CPI.

Where did I make that Claim? The CPI has had years in excess of 2-3% in the past 25 years though, according to the official stats. For example, in the late 80s and early 90s, and in a few years here and there afterwards, CPI increased about 4%. Since the CPI compounds, this is a big deal.

Some say that the CPI is too heavily weighted towards consumer electronics and "optional" or "Wants" purchases, and is flawed for leaving out middle class lifestyle "Needs" like Education and Health Care, and for most, Gas. And while gas prices are NOW unchanged between 1980 and today, for a couple of decades it was under 1980 prices adjusted for inflation, and the difference allowed people to spend more cash on other things. Having to spend the same as they did in 1980 right now means they have to spend more of their real income in gas than they did, say, in 1994.

But for the purposes of this argument, I'll leave all this out of the mix and use the Government's official numbers anyway.

Now, let's see what the CPI says about prices.

Here's the BLS CPI calculator. It clearly shows that:

$30,000 in 1986 has the same buying power as $61,570.89 in 2011

http://www.bls.gov/data/inflation_calculator.htm

That means engineers making ~$30k in 1986 is the equivalent in buying power of ~$60k in 2011, therefore, engineering starting salaries are largely unchanged in real dollars over the intervening 25 years.

Now let's check this with another datapoint working backwards; the GDP deflator.

The deflator index for 2011 is 113.327 and for 1986 it is 62.991 (US Dollar Implicit Price Deflators for Gross Domestic Product 1929-2011, 2005=100, BEA). It follows that, with numbers rounded to two decimals:

60,000.00 US Dollars of 2011 are worth 33,350.04 US Dollars of 1986.

http://stats.areppim.com/calc/calc_usdlrxdeflator.php

And we find ourselves in the same ballpark. ~$60k today is worth ~$33k in 1986.

Contrasting of entry-level engineering salaries between 1986 and 2011 show that there has been no NET REAL WAGE INCREASES for entry level engineers.

We can also infer: Over the past 25 years, there has been no shortage of entry-level engineers relative to the numbers needed by Industry, or salaries would have increased in real dollars. This is due to the law of supply and demand, which also applies to Labor Prices.

We can also infer: Since there was no increase in the real wages of Engineers, the "Increasing Salaries of Engineers jacking up the cost of housing" is probably false. Cheap Credit, or a high concentration of jobs in a small area, seems to be better culprits.

And finally, not only have there have not been increases of a "Few Multiples" in CPI or GDP adjusted dollars, there wasn't a "Few Multiples" increase even in flat, non-adjusted dollars.

thunderlips11 says

And finally, not only have there have not been increases of a "Few Multiples" in CPI or GDP adjusted dollars, there wasn't a "Few Multiples" increase even in flat, non-adjusted dollars.

Apologies if I misspoke. I guess I assumed that entry salaries are higher than you have discussed here. Fwiw, my current salary after 25 years and now as a tech lead (but NOT a principle engineer) is $170K plus bonuses not counting stock purchase plan and stock options.

Anyway, by 1988 I was making $45K. In 1988, my brother sold his 1100 sq ft 4Br/2Ba house in Santa Clara for $189K. I see that very similar houses near his sold for under $520K at the start of this year (not to mention Zillow calling the specific house $515K). If there was a perfect correlation with salary, then I guess I'd expect that the house would be worth about $400K, which would leave $100K differential.

BUT mortgage interest rates were on the high side of 11% back then, which more than accounts for a monthly payment differential that makes it easier to purchase today then back then.

Anyway, I agree that in real terms, that salaries have not made significant progress. I mistakenly thought the thesis was that even nominal salaries were moribund.

What kind of "engineers" are we talking about "Stationary Engineers" i.e.Janitors. In 1986 I made 30K in a very menial job. Electrical, Mechanical & other "real" engineers made a heck of a lot more. I think that chart is very suspect.

fizbin says

Apologies if I misspoke. I guess I assumed that entry salaries are higher than you have discussed here. Fwiw, my current salary after 25 years and now as a tech lead (but NOT a principle engineer) is $170K plus bonuses not counting stock purchase plan and stock options.

No worries, Fizbin, my last post was directed at RBbuyer rather than yourself, who either misread or misrepresented my point about growth in real and nominal pay over the years.

I enjoy pointing out that there is really little evidence supporting the "We are short of skilled workers" thesis.

For example:

Bigjim says

What kind of "engineers" are we talking about "Stationary Engineers" i.e.Janitors. In 1986 I made 30K in a very menial job. Electrical, Mechanical & other "real" engineers made a heck of a lot more. I think that chart is very suspect.

The average pay of an "Engineer I" in 1986 was $27,866, according to this BLS report from October, 1986.
http://www.bls.gov/opub/mlr/1986/10/rpt2full.pdf

For comparison, "Accountant I" averaged ~$21k, "Computer Programmer I" $20k, and "Secretary I", ~$16k.

The only job in the BLS report above (which is Professional, Technical, and Admin careers) that paid ~$30k for the entry-level worker was "Attorney I" and "Systems Analyst I".

The earlier chart for Entry-level Engineers seems to be in the ballpark.

My commute on Tasman has got a whole lot faster in recent weeks. Used to be a total logjam on the road around those Cisco buildings between about 5:05 pm to about 6:15. And the light rail cars were so packed you'd think you were in Bangalore or Calcutta or something, not San Jose/Milpitas.
Not anymore. It's gotten a lot quieter on the road and on the trains in recent weeks.

thunderlips11,

You are right. I did not realize that you were specifically speaking to the "few multiples over 25 years" assertion and I really have no idea what the "We are short of skilled workers thesis" is.

Instead, I was focused on "In the mid80s we're looking at " salary's of $30K, when they look like $25K to me. I was also focused on the assertion that starting engineer salaries "that hasn't kept pace with inflation". Thankfully, your BLS link equates inflation to CPI and therefore prooves that over those 25 years, entry level engineer salaries have beaten inflation by a small margin.

As a father with no more life of his own, except to read Pnet, I now feel much better about the whole thing. :)

thunderlips11 says

Right, and I imagine the calculations in the above chart averages all engineers, including those working in "lower-tech" industries in Ohio or Tennessee, as well as those in a high-tech SV firm.

There wasnt much of a difference between SV tech firm or many other tech firms which did similar work in past decades.

Are you considering DEC, TI, IBM, ATT and countless many non-SV companies.

E-man says

Just look at where all of the innovations come from. I'm sorry but many top of the top engineers, programmers and inventors live here in the Silicon Valley.

This is like saying "Most startup are internet companies" and "All rich people are IT related".

RBbuyer says

You are right. I did not realize that you were specifically speaking to the "few multiples over 25 years" assertion and I really have no idea what the "We are short of skilled workers thesis" is.

It's the false premise that there is a critical shortage of Engineers, IT, Biotech, etc. personnel in the USA. You'll find this argument all over the place; that we graduate too many English majors and not enough Engineers or Mathematicians.

Salary data simply doesn't bear out this claim, as shortages of supply lead to increased prices.

RBbuyer says

Thankfully, your BLS link equates inflation to CPI and therefore prooves that over those 25 years, entry level engineer salaries have beaten inflation by a small margin.

I'd argue they haven't. Here's why: The ~$60k starting salary was taken by me on faith.

While I haven't been able to source a recent BLS stat for entry-level engineers in general, I did come across a NACE survey for median starting pay.
www.naceweb.org/salary-survey-april-2012-executive-summary.pdf

Problem with these College surveys is reporting bias: Students satisfied with their salaries are most likely to respond. Those making below what their peers made will either not respond or exaggerate their pay. Colleges obviously have an interest in making the outcomes of their graduates look as good as possible (Law Schools are infamous for this).

But let's grant the accuracy of the numbers anyway. NACE claims $58,581 as median starting pay for Engineers generally.

Running it backwards to 1986, the $58,581 in 2012 dollars is $27,989.11 using the official CPI.

With the 1986 BLS numbers being $27,866 to start, it's a wash after considering the margin of error in the statistics.

An alternate datapoint, also with misgivings, is Salary.com, which figures $56,405 for "Engineer I" starting salaries.
http://www1.salary.com/Engineer-I-Salary.html

That's $26,949.45 in 1986 dollars, which is below the $27,866 claimed in the 1986 BLS report. Again, considering the margin of errors involved in the various reports, I think it's safe to call real wages as stagnant.

But here's a few other points as to why "Engineer Is" are worse off today than in 1986:
1. How much does a bachelor's degree cost today versus 1986? Monthly Loan Payments?
2. How much does a worker contribute of their own pay towards medical insurance versus 1986? Is health care/heath insurance costs the same in adjusted dollars today as they were in 1986, or (far) more expensive?
3. CPI has serious problems with health care costs and education in the household basket of goods and services. For example, the several decades-long trend of employers shifting more of the premium share for health insurance onto the employee is poorly accounted for.
4. How do national median home prices compare to 1986? Did they grow in tandem with real wages or are they higher? Rent?
5. What is the productivity of a recent graduate today, compared to a 1986 grad? Have wages scaled for productivity gains?
6. What are the Engineer I employer contributions to other benefits, like retirement plans? Are they defined or 401k? Any difference in benefit packages between 2012 and 1986 has to be made up by the employee out of his salary.

I think if one considers these points, it's fair to say that not only are real wages stagnant for starting engineers, but today's recent grads - the ones who actually find jobs - are worse off than those from 1986.

RBbuyer says

As a father with no more life of his own, except to read Pnet, I now feel much better about the whole thing. :)

Yes, debating on Pnet is great fun.

I wanna be an engineer...so freakin' bad! http://youtu.be/WiJczH3cr48

tts says

fizbin says

What the heck are you talking about? Stagnant?

This is pretty well known to be true FYI.

Of course the cost of living has risen dramatically at the same time so even in a dual income earner family people have less to spend on the non-essentials, making dual income earner families today effectively poorer than single income earner families in the 70's.

Even if we make the assumption that that is true (and it might be) it ignores as to why it is true. europe was still rebuilding in 1947...there were still significant colonies in Africa that were not independent for another 20 years. With the fall of the soviet union and china rejecting pure communism and embracing capitalism coupled with technology gains of course productivity increased.

By the time the 70's happened cars were not just made by assembly lines but by robots
http://www.youtube.com/embed/QpZDGOmLPsk

Yes it can be argued that worker protections could make it safer to handle hot products or ergonomics but why bother if robots could do it?

Lastly the other part is sophistication eventually breaks down. How many secretaries these days are really needed? Email, voice mail, next messaging, skype pretty much eliminate the need for them. Siri pretty much is the nail in the coffin. How much hand made manual labor is really required these days? If something is automatic how much training is really needed? Can a mechanic from 1960 really repair a car today with a ECM? Engineering should be broken down into subsectors. If you work for a drug company you can make quite a bit more than those averages posted. Maybe mechanical declined.