US Economic Policy: Keeping Wages Flat Since 1979

In the United States of America the rich get richer, the poor stay poor, and the middle class—if they're lucky—just stay "flat".

For the last tens years, according to a new report by the Economic Policy Institute, the failure of the economy to provide a living wage to a majority of its workers has created a decade of stagnation.

The central problem, say the report's authors Lawrence Mishel and Heidie Shierholz, is that "wage and benefit growth of the vast majority" of workers has remained steady—or even declined—amid rising costs of living while the "fruits of overall growth have accrued disproportionately to the richest households" in the country.

"The wage-setting mechanism has been broken for a generation," write Mishel and Shierholz, "but has particularly faltered in the last 10 years."

"Corporate profits, on the other hand, are at historic highs," they continue. "Income growth has been captured by those in the top 1 percent, driven by high profitability and by the tremendous wage growth among executives and in the finance sector."

The cause of this situation, according to the report, began just as Ronald Reagan was about to be ushered into power in 1979 and is "the result of intentional policy decisions—including globalization, deregulation, weaker unions, and lower labor standards such as a weaker minimum wage—that have undercut job quality for low- and middle-wage workers. These policies have all been portrayed to the public as giving American consumers goods and services at lower prices," but their real impact has been to cut earning power and upward mobility while making widely shared prosperity an impossibility.

To reverse this trend, the EPI analysis calls for two key policy initiatives. First, a commitment to severely curb unemployment by promoting a new surge in public investment, including a restoration of public services cut during the recent years of recession. And secondly, a national increase in wages across all sectors and the restoration of strong labor protections, including collective bargaining protections for union workers and an increase in the national minimum wage as key components of that effort.

This paper’s other key findings include:

• 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.
• The weak wage growth over 2000–2007, combined with the wage losses for most workers from 2007 to 2012, mean that between 2000 and 2012, wages were flat or declined for the entire bottom 60 percent of the wage distribution (despite productivity growing by nearly 25 percent over this period).
• Wage growth in the very early part of the 2000–2012 period, between 2000 and 2002, was still being bolstered by momentum from the strong wage growth of the late 1990s. Between 2002 and 2012, wages were stagnant or declined for the entire bottom 70 percent of the wage distribution. In other words, the vast majority of wage earners have already experienced a lost decade, one where real wages were either flat or in decline.
• 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.

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