Mostly
summarized from Gregory Mankiw’s Principles of Economics, 5th
Ed.
PART 8 The Data of
Macroeconomics
Chapter 24 of
36 Measuring The Cost of Living
Section 12 of 16
…
Once we are able to measure historical price and
inflation levels we can compare dollar figures of different years.
How does Babe Ruth’s 1931 salary of $80,000 compare
to current players’ salaries?
To compare Ruth's salary to salaries of today's
players we need to inflate Ruth's salary to convert 1931 dollars into today's
dollars.
Using inflation data we can find since 1931 the
overall level of prices has risen by 13.6 times.
So, Ruth's 1931 salary in 2007 dollars is $80,000 x 13.6
= $1,088,000
This is less than a quarter of today’s median Yankee
salary, and only 4% of the league’s highest salary paid to Alex Rodriguez.
Various forces have substantially raised the salaries
of the best athletes including overall economic growth and increasing income
shares shifted from owners to players.
What is today’s dollar value of President Hoover's
1931 salary of $75,000?
In 2007 dollars Hoover's salary is equivalent to
$75,000 x 13.6 = $1,020,000.
This is well above President George W. Bush's 2007 salary
of $400,000.
… …
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