Chart of the day: Hours of work needed to buy the S&P500

By Global Macro Monitor

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Here is an interesting take on the valuation of the S&P500 by our friends over at The Chart Store, who do excellent work. Their chart shows that it now takes 69.23 hours at the average hourly wage of $19.53 to buy the S&P500.

Another take is the S&P500 has outpaced average wages, which partly explains the growing wealth inequality as the average worker making the average wage holds a smaller proportion of their wealth in stocks. More ammo for the OWS crowd.

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5 Comments
  1. David Lazarus says

    I have felt that the S&P is seriously overvalued for quite some time. Whatever metric is used I it looks overvalued. PE ratios are far too high considering we are in a depression. QE is clearly doing its job in stopping asset prices falling to sustainable levels. 

  2. Anonymous says

    I have felt that the S&P is seriously overvalued for quite some time. Whatever metric is used I it looks overvalued. PE ratios are far too high considering we are in a depression. QE is clearly doing its job in stopping asset prices falling to sustainable levels. 

  3. apeqwoihaf says

    This chart is quite misleading, because it assumes that the capital stock component of the value of the S&P firms is not changing.  If wage increases are part inflation adjustment and part payment for increased productivity and if that productivity increase is partly due to work in conjunction with additional capital (which is all self-evidently true), then the nominal value of the firms in the S&P must (over time) rise faster than the average nominal wage.  There are other reasons as well why this chart is misleading, as well – e.g., the labor component of the production processes used by S&P firms vs. non S&P firms (the marginal product of labor wil differ in the two groups, and likely change over time), and changes over time in the pct. of the work force that is S&P firms (it has an affect on the averaging calculation).  This is not to say the S&P cannot be over or under valued by a wage-related metric, but those who made this comparison in the first place need to adjust for all confounding factors first, otherwise while the chart may be a great political tool, it doesn’t have any economic meaning.  This is true, unless you are, like Ricardo or Marx, a believer in the labor theory of value, but even in that case you must add in the average wage of the labor used in the production of the incremental capital used at each stage of the production process.  

    1. Blissex says

      This comment is very interesting because it missed completely the point. It is a simple graph that shows a trend. *Why* the trend behaves like that is not the purpose of the graph.

      The chart has economic meaning because people do buy “stuff”, including securities, with their time. If a chart that shows how many hours of work to buy a loaf of bread over time has economic meaning, then  a ratio of SP500 to work time also has economic meaning.

      Anyhow since we otherwise know that “real” median earnings have been stable or declining, the chart is mostly just a chart of the SP500 minus inflation, and it is useful in that way.

      1. David Lazarus says

        But median wages have not benefited from the productivity gains.

  4. Anonymous says

    This chart is quite misleading, because it assumes that the capital stock component of the value of the S&P firms is not changing.  If wage increases are part inflation adjustment and part payment for increased productivity and if that productivity increase is partly due to work in conjunction with additional capital (which is all self-evidently true), then the nominal value of the firms in the S&P must (over time) rise faster than the average nominal wage.  There are other reasons as well why this chart is misleading, as well – e.g., the labor component of the production processes used by S&P firms vs. non S&P firms (the marginal product of labor wil differ in the two groups, and likely change over time), and changes over time in the pct. of the work force that is S&P firms (it has an affect on the averaging calculation).  This is not to say the S&P cannot be over or under valued by a wage-related metric, but those who made this comparison in the first place need to adjust for all confounding factors first, otherwise while the chart may be a great political tool, it doesn’t have any economic meaning.  This is true, unless you are, like Ricardo or Marx, a believer in the labor theory of value, but even in that case you must add in the average wage of the labor used in the production of the incremental capital used at each stage of the production process.  

    1. Blissex says

      This comment is very interesting because it missed completely the point. It is a simple graph that shows a trend. *Why* the trend behaves like that is not the purpose of the graph.

      The chart has economic meaning because people do buy “stuff”, including securities, with their time. If a chart that shows how many hours of work to buy a loaf of bread over time has economic meaning, then  a ratio of SP500 to work time also has economic meaning.

      Anyhow since we otherwise know that “real” median earnings have been stable or declining, the chart is mostly just a chart of the SP500 minus inflation, and it is useful in that way.

      1. Anonymous says

        But median wages have not benefited from the productivity gains.

  5. Blissex says

    As in nearly all the graphs of this type it is pretty clear that  from 1981 to 1994 there was a fairly steep increase in the trend, and from 1994 to 2000 the trend became even steeper. Then 2000-2010 the trend is clearly downwards, even the every time the valuations seem to return to the pre-1994 or even pre-1981 trends “something” :-) pulls valuations up, desperately, even if the overall trend is down.

    The graph “curiously” :-) looks very much like the graph for the total credit/GDP ratio.

  6. Blissex says

    As in nearly all the graphs of this type it is pretty clear that  from 1981 to 1994 there was a fairly steep increase in the trend, and from 1994 to 2000 the trend became even steeper. Then 2000-2010 the trend is clearly downwards, even the every time the valuations seem to return to the pre-1994 or even pre-1981 trends “something” :-) pulls valuations up, desperately, even if the overall trend is down.

    The graph “curiously” :-) looks very much like the graph for the total credit/GDP ratio.

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