It’s the Stagnant Wages

We probably don’t need to be reminded that the economy is a critical problem. Yet the nation’s political conversation still founders on the question of what it is about the nation’s economic performance that is holding back the middle class and people trying to work their way into it. Into the fray steps the Economic Policy Institute, with straight-forward, clarifying data in a new study that should help to focus the political debate.

In reality it’s not budget deficits or economic uncertainty or a lack of innovation and productivity advances that are slowing our economic recovery and undermining the middle class. It’s the stagnant wages. EPI economists Lawrence Mishel and Heidi Shierholz offer this summary:

  • According to every major data source, the vast majority of U.S. workers—including white-collar and blue-collar workers and those with and without a college degree—have endured more than a decade of wage stagnation. Wage growth has significantly underperformed productivity growth regardless of occupation, gender, race/ethnicity, or education level.
  • During the Great Recession and its aftermath (i.e., between 2007 and 2012), wages fell for the entire bottom 70 percent of the wage distribution, despite productivity growth of 7.7 percent.
  • Weak wage growth predates the Great Recession. Between 2000 and 2007, the median worker saw wage growth of just 2.6 percent, despite productivity growth of 16.0 percent, while the 20th percentile worker saw wage growth of just 1.0 percent and the 80th percentile worker saw wage growth of just 4.6 percent.

If the numbers are making your eyes glaze over, think about this way: “the vast majority of wage earners have already experienced a lost decade, one where real wages were either flat or in decline.” And that lost decade itself was hardly following on a golden age of broad prosperity. Instead:

This lost decade for wages comes on the heels of decades of inadequate wage growth. For virtually the entire period since 1979 (with the one exception being the strong wage growth of the late 1990s), wage growth for most workers has been weak. The median worker saw an increase of just 5.0 percent between 1979 and 2012, despite productivity growth of 74.5 percent—while the 20th percentile worker saw wage erosion of 0.4 percent and the 80th percentile worker saw wage growth of just 17.5 percent.

Focusing on stagnant wages as a primary obstacle to growing the nation’s middle class enables us to think clearly about the policy choices that contributed to a lost decade for wages as well as the policy decisions that could reverse the trend. Rather than austerity, we need “large-scale ongoing public investments and the reestablishment of state and local public services that were cut in the Great Recession and its aftermath” in order to lower unemployment so that wages can rise.

We also need to raise the minimum wage and take other steps to give low- and middle-wage workers more power in the workplace – including labor law reform, immigration reform that empowers working people, and “taking executive action to ensure that federal dollars are not spent employing people in jobs with poverty-level wages.”  [Policy suggestions in the preceding paragraphs were included in the EPI study, links are my own]

In addition to EPI’s analysis, I would add that we need to be thinking about the recent strikes of Walmart employees, fast food workers, and other Americans earning low wages for hard work in the context of stagnant wages. As my colleague Catherine Ruetschlin pointed out, the $15 an hour fast food strikers are calling for sounds like a far less radical demand when you remember that the minimum wage would be $21.72 an hour if it had kept pace with productivity increases since 1968.

Wage stagnation for low- and middle-income workers is holding the entire economy back. The time to focus and take action is past due.

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