The strong rebound in domestic GDP growth announced last week beggars the question – does an increase in GDP mean anything to ordinary Australians? While I could not find any recent studies in Australia – a new study by economists Fatih Guvenen of the University of Minnesota, Sam Schulhofer-Wohl of the Chicago Federal Reserve, Jae Song of the United States Social Security Administration and Motohiro Yogo of Princeton University shows how individuals’ incomes change depending on the fluctuations of the US economy.
Please find graphs attached which show the effects of GDP changes are different for people of different income levels. Low-wage workers are highly exposed to the changes in the economy because they tend to work in cyclical sectors e.g. construction and manufacturing. While the rich are highly exposed because more of their income comes in the form of bonuses and stock options.
The study shows that demographics matter too. Men’s earnings tend to be more strongly correlated with overall economic activity than those of women; younger workers’ wages track the economy more closely than those of older workers.