BY DREW DESILVER
On the face of it, these should be heady times for American workers. U.S. unemployment is as low as it’s been in nearly 20 years (3.9% as of July) and therefore the nation’s private-sector employers are adding jobs for 101 straight months – 19.5 million since the good Recession-related cuts finally abated in early 2010, and 1.5 million just since the start of the year.
But despite the strong market, wage growth has lagged economists’ expectations. In fact, despite some ups and downs over the past several decades, today’s real average wage (that is, the wage after accounting for inflation) has about an equivalent purchasing power it did 40 years ago. And what wage gains there are having mostly flowed to the highest-paid tier of workers.
Yes or no
Americans' paychecks are bigger than 40 years ago, but their purchasing power has hardly budged
The disconnect between the work market and workers’ paychecks has fueled much of the recent activism in states and cities around raising minimum wages, and it also has become an element in a minimum of a number of this year’s congressional campaigns.
Average hourly earnings for non-management private-sector workers in July were $22.65, up 3 cents from June and a couple of .7% above the typical wage from a year earlier, consistent with data from the federal Bureau of Labor Statistics. That’s in line with average wage growth over the past five years: Year-over-year growth has mostly ranged between 2% and three since the start of 2013. But within the years just before the 2007-08 financial collapse, average hourly earnings often increased by around 4% year-over-year. and through the high-inflation years of the 1970s and early 1980s, average wages commonly jumped 7%, 8% or maybe 9% year-over-year.
After adjusting for inflation, however, today’s average hourly wage has almost an equivalent purchasing power it did in 1978, following an extended slide within the 1980s and early 1990s and bumpy, inconsistent growth since then. In fact, in real terms average hourly earnings peaked quite 45 years ago: The $4.03-an-hour rate recorded in January 1973 had an equivalent purchasing power that $23.68 would today.
A similar measure – the “usual weekly earnings” of employed, full-time wage and salary workers – tells much an equivalent story, albeit over a shorter period of time. In seasonally adjusted current dollars, the median usual weekly earnings rose from $232 within the half-moon of 1979 (when the info series began) to $879 within the second quarter of this year, which could sound sort of a lot. But in real, inflation-adjusted terms, the median has barely budged over that period:
Yes No That $232 in 1979 had an equivalent purchasing power as $840 in today’s dollars.
Wage increases within the U.S. rose to the highest earners
Meanwhile, wage gains have gone largely to the very best earners. Since 2000, usual weekly wages have risen 3% (in real terms) among workers within the lowest tenth of the earnings distribution and 4.3% among rock bottom quarter. But among people within the top tenth of the distribution, real wages have risen a cumulative 15.7%, to $2,112 every week – nearly five times the standard weekly earnings of rock bottom tenth ($426).
Cash money isn’t the sole way workers are compensated, in fact – insurance, retirement-account contributions, tuition reimbursement, transit subsidies, and other benefits all are often a part of the package. But wages and salaries are the most important (about 70%, consistent with the Bureau of Labor Statistics) and most visible component of employee compensation.
Benefit costs have risen faster than wages in recent years age stagnation has been a topic of much economic analysis and commentary, though perhaps predictably there’s little agreement about what’s causing it (or, indeed, whether the BLS data adequately capture what’s going on). One theory is that rising benefit costs – particularly employer-provided insurance – could also be constraining employers’ ability or willingness to boost cash wages. consistent with BLS-generated compensation cost indices, total benefit costs for all civilian workers have risen an inflation-adjusted 22.5% since 2001 (when the info series began), versus 5.3% for wage and salary costs.
Other factors that are suggested include the continuing decline of labor unions; lagging educational attainment relative to other countries; noncompete clauses and other restrictions on job-switching; an outsized pool of potential workers who are outside the formally defined labor pool, neither employed nor seeking work; and broad employment declines in manufacturing and production sectors and a consequent shift toward job growth in low-wage industries.
Sluggish and uneven wage growth has been cited as a key factor behind widening income inequality within us. A recent Pew research facility report supported an analysis of household income data from the Bureau of the Census,
Business found that in 2016 Americans within the top tenth of the income distribution earned 8.7 times the maximum amount as Americans within the bottom tenth ($109,578 versus $12,523). In 1970, when the analysis period began, the highest tenth earned 6.9 times the maximum amount because of the bottom tenth ($63,512 versus $9,212).
