For most workers, real wages have barely budged for decades
Following the better-than-expected September jobs report, several economic analyses have pointed out the continuing lack of meaningful wage growth, even as tens of thousands of people head back to work. Economic theory, after all, predicts that as labor markets tighten, employers will offer higher wages to entice workers their way.
But a look at five decades’ worth of government wage data suggests that the better question might be, why should now be any different? For most U.S. workers, real wages — that is, after inflation is taken into account — have been flat or even falling for decades, regardless of whether the economy has been adding or subtracting jobs.
Cash money isn’t the only way workers are compensated, of course — health insurance, retirement-account contributions, education and transit subsidies and other benefits all can be part of the package. But wages and salaries are the biggest (about 70%, according to the Bureau of Labor Statistics) and most visible component of employee compensation.
According to the BLS, the average hourly wage for non-management private-sector workers last month was $20.67, unchanged from August and 2.3% above the average wage a year earlier. That’s not much, especially when compared with the pre-Great Recession years of 2006 and 2007, when the average hourly wage often increased by around 4% year-over-year. (During the high-inflation years of the 1970s and early 1980s, average wages commonly jumped 8%, 9% or even more year-over-year.)
But after adjusting for inflation, today’s average hourly wage has just about the same purchasing power as it did in 1979, following a long slide in the 1980s and early 1990s and bumpy, inconsistent growth since then. In fact, in real terms the average wage peaked more than 40 years ago: The $4.03-an-hour rate recorded in January 1973 has the same purchasing power as $22.41 would today.
A similar measure, “usual weekly earnings” of employed, full-time, wage and salary workers, tells much the same story, albeit over a shorter time period. In seasonally adjusted current dollars, median usual weekly earnings rose from $232 in the first quarter 0f 1979 (when the series began) to $782 in the second quarter of this year (the most recent data available). But in real terms, the median has barely budged over that period.
What gains have been made, have gone to the upper income brackets. Since 2000, usual weekly wages have fallen 3.7% (in real terms) among workers in the lowest tenth of the earnings distribution, and 3% among the lowest quarter. But among people near the top of the distribution, real wages have risen 9.7%.
Wage stagnation has been a staple of economic analysis and commentary for a while now, though perhaps predictably there’s little agreement about what’s driving it. One theory is that rising benefit costs — particularly employer-provided health insurance — may be constraining employers’ ability or willingness to raise wages. According to BLS-generated cost indexes for wages/salaries and total benefits, benefit costs have risen about 60% since 2001 (when the data series began), versus about 37% for wage and salary costs. (Those indexes do not take inflation into account.)
Other factors that have been suggested include continued labor-market slack; lagging educational attainment relative to other countries; and a broad decline in better-paying jobs and consequent shift toward job growth in low-wage industries.
In a Pew Research Center survey from August, 56% of Americans said their family’s income was falling behind the cost of living, up from 44% in September 2007 — just before the recession hit. More than a third (37%) of Americans in the latest poll said their family’s income was staying about even with inflation; only 5% said they were staying ahead of inflation.
Drew DeSilver is a senior writer at Pew Research Center.